Read on Twitter
Lots of people talk about the necessity for liquidity in the market to make it function properly. But what is liquidity? What needs to happen to give us liquidity? Long thread incoming #footballindex
Liquidity is a) there being lots of spare cash available in the market and b) the market having the ability to create spare cash easily
For a) to happen a few things could do it. i) We could have lots of new recreational users putting in money ii) a few high net worth individuals or big insitutions could join
iii) several large market makers could get involved in the market iv) alongside these current users should be mostly be retained
For i) to happen we have most of the things in place. Effective marketing. A lot of people who believe in the platform. However, we& #39;re missing positive sentiment, and market moves that are intuitive, and are driven by football
For a lot of a)ii) to happen, we need a functioning market with fewer restrictions, more transparency as to FI& #39;s financial health, and NASDAQ integration. More work needed on all of these
For iii) to happen, I honestly don& #39;t know. Essentially FI need to sort their shit out. I suspect market makers may need more of what the ii) group want too, to feel comfortable
For a)iv) to happen we need more of all of the above. Also all users want good returns, and greater liquidity
However, you might notice that some of these are in tension. High net worth users want freedom to trade. Recreational users want positive sentiment, and intuitive market moves.
At the moment, positive sentiment is being manufactured by restricting freedoms to trade, as well as introducing an unsustainable bonus
Now, FI could choose to ignore big traders and institutions, and concentrate on recreational users. However, they don& #39;t appear to have made that decision. They appear to be making time for themselves to implement the stuff to make i), ii) and iii) users happy simultaneously
Balancing all three of these is hard, I would say. And makes the next few months crucial, in sorting out some sort of sustainable balance
The other side of liquidity is the ability create spare cash easily. So what would make this happen?
b)i) Narrower spreads would make it so traders would be more willing to sell, as they would be more confident they were getting good value
b)ii) Narrower spreads would mean many traders would be more willing to buy, as they would see the market has confidence in that player/more generally
b)iii) Rising prices would make traders more willing to sell and buy, both to sell whilst they have green numbers on a player, and buying in the belief the rise will continue
b)iv) The ability to use loans to fund trading. Gambling laws essentially prohibit FI from letting the majority of traders use loans to fund their trading. But what about institutional investors?
Would they be able to borrow secured against their FI shares? Or just use borrowing more generally? This is a big source of liquidity in other markets. This could increase liquidity significantly
So what does all of this mean? FI have a difficult balance to tread over the next few months. They might solve it all by introducing a huge flood of market maker cash. But how close is that? We just don& #39;t know.
It depends on a few individual relationships that FI hold, and they haven& #39;t revealed what& #39;s going on. Furthermore, I suspect LP001 isn& #39;t exactly rolling in dough right now, probably having made significant losses so far
Aside from that, they are balancing small trader and big trader wants. At the moment, many on either side arent particularly happy, and many sticking in doing so in the belief things will improve
Do I think FI will sort it? Overall, yes. FI are trying to do most of the things I suggested above. Some of those things will come off. Some won& #39;t. But that should at least lead to gradual improvements
Do I think we are likely to be in a period of volatility and stagnation, with only enormous dividends, trading the spreads, and a genuinely fun platform, to comfort us, for a while? Probably
How long for? Without big market makers, or huge institutional investors, it could be for months. But it could also be sorted in a few weeks
My overall message - prepare your portfolios and your mindset for both. This is likely to be sorted. But it could take weeks, or it could take months. In the mean time, try and enjoy the challenge 
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🙂" title="Leicht lächelndes Gesicht" aria-label="Emoji: Leicht lächelndes Gesicht">
PS I don& #39;t claim to be an expert on liquidity in markets more generally - this is mostly from my knowledge of FI. I have definitely missed a bunch of stuff out, and may have got stuff wrong, despite my best efforts. Very much welcome challenge on any/all!
