Again from Eric we get this really important education on the difference between liquidity and volume.
While it’s pretty normal to have volume and liquidity being coincident, at least that used to be the case, today with our computer-driven “markets” it’s possible to have the liquidity dry up to practically zero even as trading volume spikes.
I love his rules above:
- High volume + High liquidity = small price moves
- High volume + Low liquidity = big price moves
- High volume + HFT-only liquidity = flash crash