Types of Traders- There are two types of traders on the floor of the exchange – Commission Brokers and Locals. Commission brokers are the ones who execute trades for other people and charge a commission. Locals trade on their own account. Some commission brokers represent banks or other firms. The futures market has wider access and has a greater diversity of participants.
Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. Liquidity is a bank’s capacity to fund an increase in assets and meet both expected and unexpected cash and collateral obligations at a reasonable cost and without incurring unacceptable losses. Liquidity risk is the inability of a bank to meet such obligations as they become due, without adversely affecting the bank’s financial condition. Effective liquidity risk management helps ensure a bank’s ability to meet its obligations as they fall due and reduces the probability of an adverse situation developing. This assumes significance on account of the fact that liquidity crisis, even at a single institution, can have systemic implications.
Market liquidity refers to the extent to which a market, such as a country’s stock market or a city’s real estate market, allows assets to be bought and sold at stable, transparent prices. In the example above, the market for refrigerators in exchange for rare books is so illiquid that, for all intents and purposes, it does not exist.
All futures are traded on organized exchanges. Trading of currency futures is conducted electronically. In an auction market, any offer to trade must be to the public. It must be made open to all interested parties at a location on the exchange floor known as the pit which has been assigned a particular futures contract.
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