Connect with us

Forex

Stock Market Liquidity and the Benefits for Traders

Published

on


Stock market liquidity is an important concept for traders to understand. Knowing the stocks that are easiest to convert to cash without the price being affected means you will be in a stronger position to buy and sell. In this piece, we’ll explore stock market liquidity in depth, reveal some of the most liquid stocks and the benefits of trading them, as well as covering the differences between stock market liquidity and FX liquidity.

Stock market liquidity refers to the stocks that have sufficient trading volume to allow traders to enter and exit positions straightforwardly. Stocks that are not liquid and don’t have sufficient volume cannot be bought or sold as easily. This is simply because it’s harder to find buyers and sellers for such stocks.

Liquidity can be measured by share turnover, which is calculated by dividing the total number of shares traded over a given period by the average number of shares outstanding for the period. If a company has a high share turnover it will have liquid company shares.

For example, if a company on a major index such as NASDAQ, DAX 30 or FTSE 100 has 100 million shares outstanding on the first day of its fiscal year and 150 million on the last day, the average outstanding shares will be 125 million for the year. With a trading volume of 90 million shares for the year, the calculation is 90 million/125 million = 0.72, which expressed as a percentage is a share turnover of 72%.

What are the Most Liquid Stocks?

Examples of high liquidity stocks in the tech sphere include Microsoft, Google and Facebook, in e-commerce Amazon, Alibaba and Shopify, and in the energy sector Exxon, General Electric and Chesapeake Energy. The share volume of stocks refers to the number of shares that changed hands during a given day. The highest volumes will often be in the tens of millions, with stocks considered liquid around 200,000 and upward.

Naturally, the liquidity levels of stocks will vary, but for the most part the larger market capitalizations will have more liquid stocks. For a picture of the liquidity of stocks by sector, the following table shows some of the most liquid stocks as of April 2019.

Energy

Financial

Healthcare

Industrials

Technology

Telecoms

Chesapeake Energy

Bank of America

Celgene

CSX Corp

Amazon

AT&T

ExxonMobil

Berkshire Hathaway

Johnson & Johnson

Deere & Co

Apple

Comcast

General Electric

Blackstone Group

Merck & Co.

United Technologies

Cisco

T-Mobile US

Halliburton

KKR & Co

Pfizer

US Ecology

Google

Verizon

Transocean

Lloyds Banking Group

Teva

Waste Management

Intel

Vodafone

Benefits of Trading Highly Liquid Stocks

Highly liquid stocks can be particularly beneficial for day traders – their sizeable trading volume means that positions can be entered and exited quickly without price being hit, suiting the rapid pace of the day trading experience.

Since liquid stocks enable the opening and closing of positions efficiently, traders can stay comfortably within their risk management strategy. Compare this to trading less liquid stocks, where it may take considerably longer to execute an order because their share volume is so low.

To find stocks with good liquidity, as with finding stocks that are volatile, you can use a stock screener tool. This helps find stocks according to specified criteria, in this case trading volume.

Relationship Between Liquidity and Fundamental and Technical Analysis

Trading volume can be affected strongly by fundamental and technical factors. An example on the fundamental side can be seen in the chart below, where subprime lender Provident Financial saw aggressive selling in August 2017 following a profit warning, the company scrapping its dividend and its CEO leaving.

Stock Market Liquidity and the Benefits for Traders

Chart to show the relationship between trading volume and price movement at subprime lender Provident Financial. Source: IG.com

In terms of technical analysis, a significant price increase coupled with a notable increase in volume could indicate a continued bullish trend or bullish reversal. On the flipside, a price decrease along with a volume increase could be a sign of a continued bullish trend or bullish reversal.

Traders focusing on technical analysis may find volume indicators useful. The Positive Volume Index and Negative Volume Index are based on the previous day’s trading volume and market price and can be a useful way of showing how volume is affecting price.

Differences Between Stock Market Liquidity and FX Liquidity

When assessing the difference between stock market liquidity and forex or FX liquidity, it is important to note that all major currencies are highly liquid due to there always being a high volume of currency available to trade. The forex market operates 24 hours a day with trading averaging $5.1 trillion per day, according to the Bank for International Settlements. This means positions can be opened and closed round the clock, boosting liquidity further.

By comparison, while some stocks will have high liquidity such as the blue-chip examples above, smaller stocks with lower trading volumes can be significantly less liquid.

Other Trading Routes

If you’d rather not trade individual stocks, it may be worth considering trading the most liquid major stock indices such as the Dow Jones, S&P 500 and FTSE 100. Alternatively, as mentioned the forex market represents the most liquid choice of all.



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Forex

Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil

Published

on

By


New to Forex Trading? Get started with this Free Beginners Guide

DXY, Euro, Loonie Monthly Opening-Ranges Intact

The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.

Why does the average trader lose? Avoid these Mistakes in your trading

Key Trade Levels in Focus

DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.

EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.

GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.

Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Key Event Risk This Week

Economic Calendar- Key Data Realeses

Economic Calendar – latest economic developments and upcoming event risk

Active Trade Setups:

Learn how to Trade with Confidence in our Free Trading Guide

—Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex



Source link

Continue Reading

Forex

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop

Published

on

By


MARKET DEVELOPMENT – AUD Soars on Shock Election, Apple Shares Slump, Risk to S&P 500

DailyFX Q2 2019 FX Trading Forecasts

AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)

Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.

Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop - US Market Open

Source: DailyFX, Thomson Reuters

DailyFX Economic Calendar: – North American Releases

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop - US Market Open

IG Client Sentiment

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop - US Market Open

How to use IG Client Sentiment to Improve Your Trading

WHAT’S DRIVING MARKETS TODAY

  1. Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
  2. COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
  3. Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
  4. Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



Source link

Continue Reading

Forex

Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low

Published

on

By


Gold (XAU) and Silver (XAG) Price Analysis and Charts.

  • Gold (XAU) eyes a cluster of support.
  • Silver (XAG) makes afresh 2019 low as buyers disappear.

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

Gold (XAU) Needs to Support to Hold

The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.

How to Trade Gold: Top Gold Trading Strategies and Tips

Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)

Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low

Silver (XAG) Nears a Fresh Six-Month Low

Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.

Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)

Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low

Trading the Gold-Silver Ratio: Strategies and Tips.

IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.

— Written by Nick Cawley, Market Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1



Source link

Continue Reading

Trending

Copyright © 2017 Zox News Theme. Theme by MVP Themes, powered by WordPress.