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Liquidity in trading

Liquidity in trading
To those who trade, liquidity is essential for two reasons:
1. First: because it guarantees that we will be able to buy and sell at the best prices.
2. Second: because it guarantees quick operations when we're looking to buy or sell.
by Paulo Rebelo   |   comments 0

What are the advantages and disadvantages of liquidity?

If we follow the logic:
  • more bettors on a match = more liquidity
we come to the conclusion that more liquidity makes for quicker matching of our bets.

Simply put, a match with liquidity is a match where a lot of money is changing hands either on matched or unmatched bets.

Liquidity is an indicator that measure how easily we can turn an active into money (which is the most liquid active of all).
For instance, a cellphone has more liquidity than a house, because you can sell it more easily.

Imagine you had two cars which cost exactly the same, a BMW bought in Portugal and a BMW bought in England (right side wheel) and you have them both in Portugal.
Which one do you think is worth more?

The Portugal bought BMW is worth more because you can easily find a buyer for it. The English BMW on the other hand, although it costs the same, is worth less because you will be hard pressed to find someone who wants to buy a right side wheel vehicle in Portugal.

The case is similar in betting. A 2.00 odd bet is prized the same whether on a high liquidity or low liquidity one, however, the one placed on the high liquidity match is worth more because you can "sell it" (if you Backed you can Lay, if you Layed you can Back)

To those who trade, liquidity is paramount for two reasons:
  1. First: because it quickly guarantees that we can buy and sell at a better price.
  2. Second: because it guarantees that we can quickly buy or sell our bets.
More, for professional traders who move large sums of money, it is important to have enough liquidity to absorb such a huge transaction value.
If a match allows us to work with 5.000€ stakes, it's worth 100 times more than a match that only allows us to work with 50€ stakes.