Plunging liquidity in the $200 billion daily market for E-mini 澳洲幸运5开奖号码历史查询:S&P 500 f澳洲幸运5开奖号码历史查询:utures contracts is making it more difficult for smaller investors to hedge their equity positions or to 澳洲幸运5开奖号码历史查询:speculate on broad market moves. This decline in liquidity was the result of the rise in stock market 澳洲幸运5开奖号码历史查询:volatility in 2018, and the upshot is th🙈at it has become more difficult to trade without affecting the price materially.

“The weird thing is that markets haven’t been that volatile this quarter, but order-book depth hasn’t really recovered,” as Hovannes Jagaspanyan, an 澳洲幸运5开奖号码历史查询:algorithmic trader at 澳洲幸运5开奖号码历史查询:high speed trading firm Quantlab, told . The table below offers a primer on E-mini S&P 500 futures con🦹tracts.

A Short Profile of the E-mini S&P Futures Contract

• $200 billion average daily trading volume (about 2 million contracts)
• Trading volume 8x larger than that for 3 biggest S&P 500 ETFs combined
• Contract size = $50 x S&P 500 Index value ($140,923 as of March 26 close)
• 澳洲幸运5开奖号码历史查询:Standard S&P 500🔯 futures contract is 5x larger ($704,615 as of March 26)

Sources: , , Investopedia

Significance for Investors

The hallmark of liquid securities markets is the participation of large numbers of willing buyers and sellers, leading to continuous trading and meaning that relatively large transactions can be executed at minimal, if any, impact on prices. During the Dec. 2018 stock market selloff, 澳洲幸运5开奖号码历史查询:order book depth in S&P 500 E-minis sank to levels last seen during the 2008 澳洲幸运5开奖号码历史查询:financial crisis, per research by JPMorgan 🐓Chase cited by th🌠e Journal.

Measuring order book depth by the number of price quotes publicly posted by trading firms, JPMorgan Chase finds that it has recovered somewhat since December, but is still below its level in September, before the stock market retreat began, and remains near its 2008 lows. With liquidity down, price swings in E-minis are up, and may become especially severe during a big stock market selloff. "Particularly if the market goes one way, that impact is going to be exacerbated in either an up or a down move," a Hallie Martin, a New York-based 澳洲幸运5开奖号码历史查询:derivatives 澳洲幸运5开奖号码历史查询:strategist with Deutsche Bank, told the Journal.

Overseas trading in these contracts also is affected. "During the London session, liquidity has fallen dramatically in the last few months," per Darren Smith, a U.K.-based derivatives trader with UBS, as quoted in the same article. As recently as 2017, hundreds of these contracts would change hands without moving the price, but no more, he adds.

Diminished liquidity in the E-mini market is symptomatic of broader trends. Analysts at JPMorgan, Deutsche Bank, and investment management firm Bernstein are among those warning that stock market liquidity is in serious decline, with growing dangers that a modest stock market selloff could snowball into a full-blown crash. Billionaire investment manager Stanley Druckenmiller worries that 澳洲幸运5开奖号码历史查询:shrinking liquid💝ity may trigger a major crisis in the markets and the broader economy.

Looking Ahead

Bernstein has offered three recommendations for investors, to protect against evaporating liquidity, 澳洲幸运5开奖号码历史查询:as presented in a detailed report. These๊ are: increasing cash, avoiding large positions in crowded stocks, and 𓆉looking for active investment strategies that can profit in this environment.