How a liquidity crunch would impact markets

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.

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