Hedge Funds are used to liquid markets - what happens when liquidity dries up ?

Discussion in 'Trading' started by trillenium, Jun 6, 2006.

  1. FIA Annual Volume Survey: World Futures Volume Soars to New Highs... Again

    In the past several years all futures markets have seen increasing volumes in contracts traded. We have huge hedge funds now with huge positions and they take it for granted to be able to get out of positions because we have such liquid markets. Everything seems so stable with bid and offer sizes that enable even the biggest funds to almost trade intraday - especially in the Bond markets.
    What will happen when that liquidity dries up due to a sudden big movement. In my opinion we will have a collapse of the financial system. Funds with their huge positions will be forced to liquidate in very illiquid markets -- LTCM crises will look very small compared to this one.

    Any opinions ?