“Liquidity begets liquidity”
“Liquidity begets liquidity” is a financial saying meaning that once a market is proven to have liquidity (active buying and selling), more investors join in and there is more liquidity. The reverse is also true that “less liquidity begets less liquidity.”
“Liquidity begets liquidity” has been cited in print since at least 1987.
Google Books
Forbes
Volume 140, Issues 10-14
1987
Pg. 315:
“Liquidity begets liquidity,” they continued. What this mouthful means is that the more index futures selling takes place, the more rational, profit-seeking buyers will come into the market.
The Street
The Futures (and Options) of the Nasdaq 100
By Brad Zigler11/13/99 - 12:10 AM EST
(...)
Options traders, more than other traders, have a strong herd instinct. We’re attracted to markets already populated by our kind. Simply put, liquidity begets liquidity. Liquidity is made manifest in the metrics of volume and open interest. Volume represents the number of contracts changing hands. Open interest is the total number of outstanding option contracts awaiting liquidation. A spread is the difference between a simultaneous bid and an offer. For comparative purposes, a spread can be reduced to a percentage of total contract value ($100 times the index).
Google Books
Information Markets:
What Businesses Can Learn from Financial Innovation
By William J. Wilhelm, Jr. and Joseph D. Downing
Boston, MA: Harvard Business School Press
2001
Pg. 15:
In financial markets, liquidity begets liquidity. In other words, like most information markets, they exhibit network effects.
3 January 2004, Santa Barbara (CA) News-Press, “Big Board has more challenges ahead of it” by Landon Thomas, Jr., pg. B7, col. 6:
The exchange’s defenders argue that liquidity begets liquidity. Investors choose to trade on the Big Board because that is where it is easiest to execute large trades at the best possible prices.
OCLC WorldCat record
Liquidity Begets Liquidity: Implications for a Dark Pool Environment
Author: A Sarkar; R A Schwartz; N Klagge
Edition/Format: Article : English
Publication: JOURNAL OF FIXED INCOME, 18, no. 3, SUPP/1 (2008): 15-20
Database: British Library Serials
Google Groups: iktisattarihi2008
erol quantum
2/3/09
Professor Michael Mainelli
[An edited version of this article first appeared as “Liquidity = Diversity”, Journal of Risk Finance, Volume 9, Number 2, pages 211-216, Emerald Group Publishing Limited (March 2008)]
(...)
There is an old phrase that “liquidity begets liquidity” meaning, simply, that once some people start trading, more people will join them. This phrase is often used to explain away monopolistic problems with exchanges. The assumption is that a successful, and beneficial, exchange will inexorably draw all relevant trading to its increasingly liquid market. Michael Milken said, “Liquidity is an illusion. It’s always there when you don’t need it, and rarely there when you do.” Most traders claim that more liquid markets are better than less liquid markets for everybody. Not surprisingly, while they last, liquid markets are better for traders. In liquid markets traders can conclude many deals with concomitant commission. In illiquid markets traders have fewer trades and more risk.
Google Books
Commercial and Investment Banking & the International Credit and Capital Markets
By Brian Scott-Quinn
New York, NY: Palgrave Macmillan
2012
Pg. 220:
‘Liquidity begets liquidity’ is a well-known aphorism. What this means is that investors will seek to trade wherever they think they will find liquidity.
Futures & Options World
Feature: Scandinavian derivatives battered by cold front
28 August 2012
(...)
Liquidity begets liquidity, financial market wisdom dictates, but the opposite is also true: lack of liquidity begets dead markets – a fact to which operators of Scandinavian derivative exchanges, based on recent experience, will readily testify.