Shrinking liquidity is a real threat to markets.
As Reuters reports, “The calm [of] global financial markets masks a growing threat to their smooth functioning, should shrinking liquidity morph into an outright crunch in response to a U.S. interest rate rise, or some other shock.”
Market liquidity is hard to measure, adds Reuters. But if it becomes too scarce, investors will see higher trading costs and wider bid-ask spreads. Read more.