SFYL
SFYL
Sep 5, 2018 · 2 min read

Volume != liquidity, to test for liquidity a picture of the orderbook at time T is not pertinent as an action at time T would instantly change the picture of the orderbook (which may not even be relevant if there are iceberg orders or privileged access to data possibilities, collocation included). In fact, it exists no consensus in how to measure liquidity. Actually an orderbook with a consequent depth in relation to the competitors’ that vanishes when the order is submitted is wash trading (in relation to the study, we could call that “unprinted fake volume”, bitfinex has had doubtful episodes regarding the latter during last year), that is why the study would have been pertinent against the orderbook to test for its relevancy, not volume. Indeed, a manipulated orderbook would have meaningful consequences in the result of your study.

Okex is hardly liquid in anything else than btc pairs, but it is still compared on those illiquid assets with exchanges that possess relatively high volume in alts compared with Okex. Hence, if most volume is arbitrage related, it can be understood why volume take a cyclical shape (depending on the region from where are the traders that engender the most volume, nice Gaussian curve by the way showing that most of the volume tends to occur during a specific fraction of the day). Then, it is in the interest of most of the participants if they are deemed market maker and/or arbitrager to let you impact as much as possible the order book with your order in order to reduce the probability of being adversely selected, holding inventories and maximize their profits while reducing their risks.

Even though the conclusion may be real, we cannot accept the study as the methodology is incorrect.

Exemple of a study on the matter:

https://business.illinois.edu/tcj/papers/JFE_2008.pdf

“The willingness of agents to accommodate the marginal trading needs of others does not change as the scale of the transaction demand changes”

    SFYL

    Written by

    SFYL

    A kid lost in financial markets.