Lesson Overview

The Importance of Liquidity

The term liquidity refers to how fast something can be entered or exited and turned into cold, hard cash (the kind you stick in your wallet).

If you want to trade on a professional level you absolutely need to focus solely on liquid underlying stocks. These allow you to more quickly enter or exit the market AND at better pricing with a narrowed bid/ask spread.

In this video I want to show you a real example of a trade I could not exit to save my life no matter what price I tried. Nobody was on the other end to take this trade and I learned a hard lesson again on liquidity.

More Discussion

Was This Helpful? Add Comments/Questions

  • Sushant Thakare

    Hi Kirk,
    1. How often does the pre-screened high liquid stock list change. I believe in keeping a watchlist and trade only those stocks I know of.
    2. By high liquidity: do you mean options for all months are liquid or any specific months with specific strike price?
    Appreciate your help.

    • 1) Generally once a quarter. We’ll be updating it again in January once we get annual figures from CBOE. 2) Overall liquidity is what we look for and this is a blended average of front month and back month liquidity.

  • Because they still have to be able to close the day at zero and don’t usually want to carry trades over – so if there is no liquidity then they have to hold contracts for a long-time, even it’s good pricing they’ll end up giving it back when the pass the contracts on.

  • Their job is to keep markets liquid but at the same time they aren’t going to take undue risk.

    • Erik

      Kirk:
      Thank you for your insights. Have a great weekend!

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