Series 79: Requirements For Effective Markets

Requirements for Effective Markets

Several key attributes are considered necessary for a financial market to be truly effective at its intended purpose. In general, these attributes include the following:

• • Liquidity. An effective market will be highly liquid, meaning that it is relatively easy to match buyers and sellers. In an illiquid market, a seller of a security or asset may have difficulty locating a willing buyer, and vice versa.
• • Transparency. Somewhat related to the concept of liquidity, transparency ensures that accurate information about trades and prices is promptly available.
• • Operational efficiency. Trading must be accomplished reliably, quickly, and at a relatively low tra