Securities trading parsed out academically… from a staff report recently published by the New York Federal Reserve…
~~~~ “Liquidity is sometimes defined as a coordination phenomenon.
In financial markets, as investors move into a specific market they facilitate trade for all investors by reducing the cost of participating in this market.
At the same time, easier trade and lower trading costs attract potential investors. There is a thick market externality where new investors provide market liquidity and market liquidity attracts new investors.
However, as investor prefer to join one side of a market, i.e. as they become buyers or sellers, this side of the market becomes “congested”, hindering trade.
Congestion then discourages investors from entering this market…. ” ~~~~
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