Great article by @EricGPlatt and @JARennison examining how atrophying liquidity has exacerbated the violence of many recent moves. https://www.ft.com/content/e4e33332-544b-4633-8b3b-a9594837baf1 …pic.twitter.com/q4WaZZsweU
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Volatility is driven by macro factors, depth is driven by short term adverse selection. The former causes the latter.
Right - the way I think of it is there is a "cost" to providing liquidity (driven by macro/fundamental uncertainty) and there is a "price" that MMs charge to supply it (depth/spread) so when the cost increases, the price has to increase too.
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Tbf from my short experience, a lot of times liquidity is available, but not shown on book. Like ES order book during Asian hours may look super thin (and may be for market orders), but plenty of tight spreads quoted when using RFQ. Though RFQ spreads during Mar20 were
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surely if you're doing say a YoY or MoM comparison though it's going to be more proportional, even if not lit?
End of conversation
New conversation -
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Also measuring in ticks is a bit misleading. The future is substantially higher than march 2020 with the same tick size.
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And what of profit margin? I presume this fits with the overall notion that volatility drives profitability for MM because profit margin stays roughly in tact while volume increases dramatically?
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