What is Liquidity?
Selling a house
Selling a common, popular car
Buying 1,000 worth of Telstra shares
This is easy for anyone with a broker account, which most adults can open online within a few days. Telstra is a highly liquid stock; over $100m worth of shares are transacted every day, and there is only one major market. Thus anyone can observe and trade at a fair market price at all times online. A $1,000 parcel of Telstra shares is highly liquid compared to almost any other asset.
Buying 5 billion worth of Telstra shares
Liquidity & Market Making
Imagine trying to find another investor who wants to do the exact opposite trade to you at exactly the same time – it would be practically impossible.
The role of the market maker is to continuously provide bid and offer prices in the market so that investors can always access liquidity on a broad range of financial products.