Re:Why Index Funds Are Like Subprime CDOs
by nickles on Thursday September 05, 2019 @03:47PM
(#20890087)
> An illiquid asset cannot be liquidated without slippage - that's why there's a liquidity premium.
We agree here.
> Those are the same thing.
We disagree here.
"In economics, a liquidity premium is the explanation for a difference between two types of financial securities (e.g. stocks), that have all the same qualities except liquidity." [0]
"With regard to futures contracts as well as other financial instruments, slippage is the difference between where the computer signaled the entry and exit for a trade and where actual clients, with actual money, entered and exited the market using the computer’s signals."
We agree here.
> Those are the same thing.
We disagree here.
"In economics, a liquidity premium is the explanation for a difference between two types of financial securities (e.g. stocks), that have all the same qualities except liquidity." [0]
"With regard to futures contracts as well as other financial instruments, slippage is the difference between where the computer signaled the entry and exit for a trade and where actual clients, with actual money, entered and exited the market using the computer’s signals."
The concepts are related, but not identical.
[0] https://en.wikipedia.org/wiki/Liquidity_premium
[1] https://en.wikipedia.org/wiki/Slippage_%28finance%29