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Global Liquidity Drives the Market

Global Liquidity Drives the Market
Photo by engin akyurt / Unsplash

Hi readers,

It has been quite some time since I have last posted.

Recently, I have discovered a primary factor that drives asset prices: global liquidity. Here's why:

  1. Ease of trading: Liquidity impacts the ease with which assets can be bought or sold without affecting their market price, reducing the risk of price fluctuations and allowing for faster execution of orders[1].
  2. Efficient market: Liquidity attracts more market participants, leading to a more efficient market with tighter bid-ask spreads and increased market depth[1].
  3. Reduced risk: Liquidity is crucial for market makers, as it enables them to rapidly buy and sell, reducing the risk of being left with an unwanted position in any asset[1].
  4. Lower risk for investors: High market liquidity is associated with lower risk, as there is usually always someone willing to take the other side of a given position, which can attract speculators and investors to the market[1].

Tracking global liquidity takes expertise, experience, and knowledge. My preferred free source on the internet is Cross Border Capital. It tracks global liquidity on various scales, but most importantly, the two largest economies of the world, the United States of America and China. I recommend following them on X for real-time updates on global liquidity.

In my experience, tracking global liquidity helps me make informed decisions on trades or investments I would want to make. For example, if I am taking a 'Long Trade' on iron ore, an increase in short-term liquidity (3-6 months) coupled with a preferred entry (using technical analysis) would be favourable for a long position[1].

In summary, you can think that liquidity to a market is similar to oil to a machine; it keeps the system running. That's all for now, folks.

Blessed holidays,
Lucas Koa

[1] https://www.ig.com/uk/trading-strategies/what-is-market-liquidity-and-why-is-it-important--190214