Continuing to introduce the relevant content of trading liquidity below #交易流动性 :

4. Main Sources of Liquidity (Continued)

• Bid-ask spreads, such as designated market makers (DMM) on the NYSE providing liquidity for stocks.

2. High-Frequency Traders (HFTs)

◦ Utilizing advanced algorithms and technology to quickly buy and sell assets, profiting from small price fluctuations while increasing market depth and liquidity, such as some quantitative hedge funds adopting high-frequency trading strategies.

3. Large Financial Institutions and Investors

◦ Banks, mutual funds, pension funds, etc., conduct large-scale trading in the market, and their trading activities also provide a certain level of liquidity, but their trading decisions are usually based on long-term investment goals and market analysis.

5. Factors Affecting Trading Liquidity

1. Number and Type of Market Participants

◦ The more participants there are and the more diverse their types, the higher the market liquidity. For example, the foreign exchange market, due to the participation of numerous banks, businesses, and individuals worldwide, has become one of the most liquid markets.

2. Characteristics of Assets

◦ Homogeneity of Assets: Standardized and homogeneous assets (such as gold futures contracts) have better liquidity due to their ease of valuation and trading.

◦ Popularity and Recognition of Assets: Stocks of well-known companies (such as Apple and Microsoft) typically have higher liquidity than stocks of lesser-known small companies.

3. Transparency of Market Information

◦ In markets where information is disclosed fully and timely, investors can accurately assess asset values and are more willing to engage in trading, thereby increasing liquidity, such as securities markets where listed companies disclose financial reports and other information in a timely manner as required.

4. Trading Mechanisms and Market Rules

◦ Trading Hours: Markets with longer trading hours (such as the global foreign exchange market, which trades almost 24 hours) have better liquidity.

◦ Price Limitations: Appropriate price limits can stabilize the market, but excessive restrictions may suppress liquidity, like the price limit system in A-shares.

6. How to Measure Trading Liquidity?

1. Bid-Ask Spread Method

◦ Calculate the ratio of the bid-ask spread to the asset price; the smaller the ratio, the higher the liquidity. For example, if a stock has a buy price of 10 yuan and a sell price of 10.05 yuan, the spread ratio is (