Markets Need Real Liquidity, Not Illusions
This op-ed explains why real, sustainable liquidity — not LaaS or inflated metrics — is essential for financial market stability.
In the financial markets, not all liquidity is the same. Good liquidity has instant execution, dependable prices, and steady availability, especially when prices change quickly. With that in mind, firms should look at quality measures, like the number of orders, how often orders fill, and how trades affect the market, instead of just total volumes.
Liquidity also has a behavioral side. Market liquidity does not involve only technical aspects — it also links with behavioral economics. Sentiment, fear, and herd mentality play a major part in how liquidity changes, especially during a crisis. Knowing the hidden cost of weak liquidity should cause firms to put money into better and tougher liquidity systems. This protects them from possible market upsets.
In this context, veteran investors learned their hard lessons, stating that real liquidity is far more important than just nominal aggregated figures crafted to please financial regulators. It’s the true liquidity that plays a key role in shaping the efficiency and stability of financial markets.
