Comment by quickthrowman
3 years ago
If you own equities (individual stocks, ETFs, mutual funds) then you benefit. More liquidity means lower bid/ask spreads which means lower transaction costs and higher returns (since you are paying lower transaction costs, more of your money is invested and it adds up over time) for every investor. The NYSE minimum tick size used to be 12.5 cents, then 6.25 cents.
Once HFT firms started becoming more widespread, the spread lowered significantly. SPY bid/ask spreads are 1 cent on a share that costs ~$450. Some assets even have sub-penny bid/ask spreads.
The traders that create units of SPY get better spreads on the underlying stocks too, which benefits you as well by reducing asset fees and more accurately representing the NAV by lowering transaction costs. The S&P 500 is made up of 500 stocks, it is much more cost effective to assemble a basket of stocks with 1 cent spreads than 6.25 or 12.5 cent spreads.
Liquidity does the same thing for every market, it increases the speed and accuracy of price discovery and lowers transaction costs.
> If you own equities (individual stocks, ETFs, mutual funds) then you benefit.
Right, yes - I as a relatively-wealthy individual certainly benefit from an effective market. But does _society_ benefit from the existence of a stock market in the first place? Does the increase in wealth for those at the top outweigh the comparative-loss (stagnation relative to inflation) to those who can't afford to buy-in? I find it hard to morally support a system whose justification boils down to "it redistributes wealth to the wealthier without providing any net-increase in quality of life".