Market Liquidity

What this video covers

• The word-for-word exam definition of market liquidity: the ease of entering or exiting a position quickly, at a price close to the last trade, without moving the market
• Why speculators supply liquidity rather than drain it, and how to spot the exam's favorite distractor that claims the opposite
• How a deep market with more speculators narrows the bid-ask spread, while a thin market widens it
• What the bid-ask spread actually measures: the gap between the best price a buyer will pay (bid) and the best price a seller will accept (ask)
• Why most futures positions are closed by offset rather than physical delivery, and why liquidity is strictly required for offsetting to work
• The two primary functions of a speculator: assuming risk and providing liquidity, and why any answer that names only one is incomplete