Understanding Deep Market Dynamics

A deep market can be termed as a place for securities exchange where shares in large quantities can be bought and sold without affecting their prices. They are considered to be very important for developing and maintaining an efficient financial system because such markets show the overall depth of the market. This means these markets present the number of buyers and sellers. Such information can be vital for the investors, as it provides the grounds for making investment decisions (Chinn, 2015). Deeper the market, the more investors can be attracted. A deep market also presents price stability in the market, which is also an indicator of overall growth and development status of the market. Traders, in order to develop a sound financial system, need to have access to the overall depth of the market. This way they can determine the price of securities and act accordingly. In addition, the depth of the market can also be used as a tool to obtain a better understanding of ‘bid-ask spread’ for security.

On the other hand, liquid markets are a marketplace that consists of many bids and offers along with low spreads as well as low volatility. From the overall liquidity of the market, the authorities can understand the transaction patterns and overall health of the market as well. It is far easier to trade quickly and at desired prices due to a large number of buyers and sellers, in a liquid market. The supply chain, i.e. the demand and supply has very little impact on a liquid market (Goodhart, 2017). These markets are important, mainly due to the reason that the investments can be turned into hard cash very quickly at a good rate. One of the key characteristics of such markets is that they are very less volatile, i.e. they are not extremely dependent on the various market factors and forces. This makes them more desirable and a key component for the development of a modern and efficient financial system.

Short term papers are financial instruments that have validity or maturity period of fewer than nine months. These papers, generally, are backed or supported by assets such as loans issued by a corporation. They are issued more by banks and financial corporations than non-financial corporations. The main reason behind this could be the fact that these papers require strong backing so that they can be used effectively for long term assets (Knott and Fritz, 2016). For instance, structured investment vehicles (SIVs) sell the short term papers, the amount from which is used to invest in the long term assets. Since non-financial corporations are unable to provide substantial backing, they issue the short term papers in fewer amounts.

REFERENCES

Chinn, M. D. (2015). Emerging market economies and the next reserve currencies. Open Economies Review, 26(1), 155-174.

Goodhart, C. A. E. (2017). The determination of the money supply: flexibility versus control. The Manchester School, 85, 33-56.

Knott, P. D. and Fritz, M. A. (2016). Short‐term donor site morbidity: A comparison of the anterolateral thigh and radial forearm fasciocutaneous free flaps. Head & neck, 38(S1), E945-E948.