(If you believe that an article you read on Wall Street is an accurate description of what they do, that is, that you really understand how they do it.)
The first item on the list is “marketability” (“marketability” being the concept that the market is, by definition, something that people can easily identify with) and as such has a very high impact on the number of trades for any particular price level. The second item on the list is “volume” (“volume” basically means that you can trade it if you want to, and that, by definition, there is a lot of it – and in the world of finance, the “market” is huge). The last item on the list is “value”, or, rather, the expectation that an investor in a particular market will earn a return of a given price level relative to the market as a whole, including the market for that security or commodity.
The second and third items are of a very basic variety – the first two are “risk”, or the expectation that something will happen (in this case, going bad), the third, when you’re trading on this idea, is simply what you’re trading. There is no need to explain this in a few minutes, but don’t let any of the other items make you believe that there aren’t any risks associated with being able to trade the “wrong” way; they don’t exist.
Of course, the most crucial part of any financial instrument is the liquidity. Let’s say you’re an institutional investor who is interested in buying or selling just about any security. When I’m writing those words, you will still need access to the market to make money, but once you get there, the whole purpose of your trading has been made clear: you need to have liquidity that’s not too high for the security you’re trading, but not too low for your competitors. That’s it.
Now, the best way to achieve liquidity is to be careful about what you buy. The best way to be careful about which securities you’re interested in – and which ones you wish to try to trade – is to buy a lot and trade a lot. It isn’t that the best way to be careful about trading is to trade at the same time that you’re running multiple multiple positions. If you’re an investor with money to burn, and you know what a good trading day looks like, and one doesn’t always have to mean the following 10 to twenty trades:
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