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In: Finance
Two important justifications for trading are (execution and liquidity) Why are they important?
Two important justifications for trading are (execution and liquidity) Why are they important?
Solutions
Expert Solution
Two important justification for trading are execution and liquidity
Liquidity mean one can buy and sell asset quickly on the market without significant effect on its price
higher volume provides higher liquidity . one can execute order quickly because of higher liquidity . higher liquidity reduce risk of slippage , higher liquidity also provide tighter bid - ask spread . hence liquidity is important factor in trading.
Execution mean completion of you order buy or sell. it does not mean filling of order.
Execution of buy or sell order is important to take position on stock. there are two type of order to execute any order. one is market order that provide quick execution at market price . it give guarantee of execution but not desire price . where second order is limit order that give guarantee of price but not execution . so to market order is important to take quick execution.There is no meaning of trading without execution of order.
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