What's the best way to measure how liquid a given asset is?

Bidwell
Bidwell

What's the best way to measure how liquid a given asset is?

Playboyize
Playboyize

@Bidwell
Average trade volume and the active bid ask spread.

happy_sad
happy_sad

@Playboyize
Ok one question though... what does anything you just said mean?

w8t4u
w8t4u

@happy_sad
Search on investopedia

Average trade volume
Average amount traded per day

Active bid ask spread
Difference between the given amount people are willing to pay (bid for an equity) and the price people are putting it up to sell (ask price)

Bidwell
Bidwell

@happy_sad
he means, if theres alot of people buying and selling your asset.. its pretty liquid

lostmypassword
lostmypassword

@w8t4u
Why does the difference between the bid and ask prices affect how liquid an asset is? Why does it matter, as long as people are buying it?

Is a lower "spread" more liquid or less liquid?

kizzmybutt
kizzmybutt

@lostmypassword
Is a lower "spread" more liquid or less liquid?

More liquid.

The lower the spread that means it's a highly traded equity

Playboyize
Playboyize

@kizzmybutt
why are you spoonfeeding. this shit is lmgtfy tier. too fucking dumb to google, too fucking dumb to make money.

Deadlyinx
Deadlyinx

@Playboyize
I don't know, might as well. That's like 99% of the question threads on every major board anyways, might as well not browse Veeky Forums at all if you're not going to spoonfeed fags and feel good about helping some retards

Emberburn
Emberburn

@Deadlyinx
you're only enabling retards to lose money faster. these guys can't even add 2+2. how the fuck are they going to "invest" and "trade".

Evilember
Evilember

@Emberburn
I try to tell them to buy ETFs but the memecoiners get there faster eachtime and sell them dreams of rolls royces and poppin champagne bottles

Firespawn
Firespawn

@kizzmybutt
The lower the spread that means it's a highly traded equity

So spreads really have no effect on the liquidity of something, they are just an indicator that the average trade volume is high. It's the liquidity that has an effect on the spreads, not the other way around.

So theoretically there could be an asset with high spreads but also high trading volume and it would still be liquid despite the difference in bid ask prices, am I missing something here?

TalkBomber
TalkBomber

@Firespawn
So theoretically there could be an asset with high spreads but also high trading volume

I don't think that's possible. In order for things to sell, IE to have a high trading volume the bid-ask needs to match. So if it's traded very frequently it cannot have a high spread

Just google it and look on investopedia man. You'll get a faster and better result, that's where we learned this shit from

TurtleCat
TurtleCat

@TalkBomber
Maybe most of the people are just putting in market orders, and the people bidding and asking aren't selling to each other. It's possible, maybe not in the real world but it's possible.

BlogWobbles
BlogWobbles

@TurtleCat
I don't fuckin know.

I'm an ETFcuck, that's all i buy. All my shit has insane volume so I've never actually given a fuck about bid-ask spreads

StonedTime
StonedTime

@BlogWobbles
Do you trade ETF's frequently or is it more of a long term position?

Never traded before, ever

VisualMaster
VisualMaster

@StonedTime
Generally with ETFs you're going for the longterm.

I am buying often and holding for the next couple decades.

ZeroReborn
ZeroReborn

@VisualMaster
So this is more like a savings type of investment, as opposed to an aggressive stance. Have you ever tried just day trading cheap penny stocks? ( I ask because I'm interested in trying it, but trying to gain as much knowledge beforehand)

eGremlin
eGremlin

@VisualMaster
But I'm not a rolls royce and champagne dreamer. Lol. I am 19 and work at a bank, just interested in something to do in my downtime.

BinaryMan
BinaryMan

@ZeroReborn
So this is more like a savings type of investment, as opposed to an aggressive stance

Not really. Going 90-100% into the s&p would be a more "aggressive" approach (probably the most common).

Have you ever tried just day trading cheap penny stocks? ( I ask because I'm interested in trying it, but trying to gain as much knowledge beforehand)

I know I am not going to deter you, but don't bother. Most day/forex/cryptocurrency/swing/commodity/pennystock traders don't make jack shit. It's a waste of your time and you're not going to earn much if any money.

Your best approach would be to buy $VOO as often as possible and focus your efforts on making more money from your job/career or a side business.

AwesomeTucker
AwesomeTucker

@Bidwell
Try putting it in a cup.

PurpleCharger
PurpleCharger

@BinaryMan
Buy $VOO as often as possible

So continue to buy as many shares as possible, and take gains via dividends?

Booteefool
Booteefool

@Playboyize
too fucking dumb to make money
But don't forget, they have Robin Hood!

farquit
farquit

we're aqll pretty serious around here. better back off bro.

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