Trick The Representative Of Liquidty

Have y'all ever heard i of your trading buddies, tell y'all off yesteryear maxim "wag moment bilhin yan! illiquid!"

Then y'all hold off at the board as well as intend "okay naman ah"

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This tin post away hateful either ii things. Either (A) You are right as well as your friend is simply a dumb-ass who got the same scolding from a trader amongst a bigger port size. Or (B) Your dearest friend is right as well as y'all haven't experienced getting trapped on an illiquid stock.

To visualize this, allow me tell y'all a story of ii traders named Bravz as well as Andy.

Andy is non your ordinary trader. Aside from beingness an skillful inward cutting his positions he is also a rich kid.

One day, he decideds to allocate 5M inward i trade. He thinks to himself, "Rich pocket-sized ako eh. I tin post away afford." So he goes on as well as purchase 1.385k shares of MEG at 3.61. By the middle of the twenty-four lx minutes catamenia he realizes that he wanted something else, something faster. So he sells all of his shares at 3.6 amongst ease. Commission loss doesn't bother him. Rich pocket-sized kasi eh.

He thus proceeds to purchase LMG because his favorite guru told him.... "30% Discount! This is syurbol backdoor! Okadah bombah!" So he buys a meg shares of LMG at 5.

By the closing lx minutes things turned sour, supports didn't grip as well as Andy's -5% cutting levels were hit. He was inward shock! Prices were diving downward faster than that racer reached the adjacent tower inward Fast as well as Furious 7.

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 He couldn't sell all his shares because at that topographic point weren't plenty buyers.

Prices went lower as well as At 4.3 he was straightaway facing a 700k Loss. If he sold downward everything earlier as well as during the market's closing, at what cost would LMG reach? At this hollo for he understood that he was trapped as well as that it was impossible to cutting without incurring much damage. 

To give y'all a amend icon of Andy's province of affairs as well as to the hundreds of traders who don't know how to sell their shares due to illiquidity, disclose the next GIF :

So Andy decides to simply grip all his positions because it was straightaway likewise slow as well as likewise deep to cut. He thus thinks to himself : "Anyway Syurbul Backdoor naman toh. Okadah Bombah!" 

Does this audio similar individual y'all know? 

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Now, Bravz was the same every bit Andy. He was also hyped yesteryear the Okada Rumors. Hindi nga lang siya rich kid. But instead of allocating all of his funds on a unmarried play,  he decided to hold out a goodness man child as well as alone allocate 25% of his whole port on the LMG play.

Just plenty to instruct his balls wet.

Bravz is preparation to hold out a Knight Class Trader btw, belongings alone a maximum of 4 stocks at a time. Where a unmarried stock has a budget restrict of 25% of his whole portfolio. So he thus proceeds to pose inward 50k at 5. Why 5? Monkey see, monkey do! Best buddies sila ni Andy eh.

Now at the 2d that his cutting loss levels were hit, Bravz was able to sell his 10k shares easily because his allotment allowed him to hold out liquid plenty for this specific play.

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Not all traders are equal inward size. Liquidity is Relative. There are huge sharks amongst vii to 8 figures. There are Whales inward the ix Figures. And of course, let's non forget the cute trivial plankton traders that are simply starting out yesteryear the 4-5 figures.

So how tin post away nosotros know if a stock is liquid or not?

I don't know most y'all as well as what other experts would tell but I would assort a stock Liquid if I am able to role 100% of my full port, to purchase or sell the stock at electrical flow prices as well as hold out ABLE to unopen positions on the SAME DAY without unmarried handedly creating a 3-5% swing.


To farther visualize this, if y'all had to purchase 1 Million worth of shares inside a infinitesimal without causing prices to fluctuate likewise much, betwixt DMC as well as SPM, which i create y'all intend would hold out able accommodate YOUR size?

Using our super powers, the mutual sense, we'd all concur that if nosotros had to purchase a meg worth of shares, DMC is the liquid choice.

But if the stock I wanted to play was SPM as well as plainly it's illiquid for my size, I could e'er adjust my allotment thus that it becomes a Liquid Trade. Instead of buying 1M worth, I'll simply allocate 30k worth.

Because yesteryear the halt of the twenty-four lx minutes catamenia what matters is how y'all accommodate as well as merchandise accordingly to your size. 

Don't hold out a whale swimming inward shallow waters.