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QuantSchool: Liquidity considerations

The Critical Role of Liquidity

Proper liquidity management ensures you can enter/exit positions efficiently while meeting cash flow needs.

Key Liquidity Dimensions

1. Asset Liquidity Spectrum

• High Liquidity: Large-cap stocks, major ETFs
• Medium Liquidity: Small-cap stocks, sector ETFs
• Low Liquidity: Micro-caps, some alternatives

2. Liquidity Allocation Guidelines

Portfolio Size	Minimum Liquid Allocation	Illiquid Maximum
<$100K	30%	10%
$100K-$1M	20%	15%
$1M+	10%	20%

QuantWave Liquidity Tools

1. Liquidity Dashboard

• Real-time volume analysis
• Bid-ask spread monitoring
• Market depth visualization

2. Exit Simulator

• Models position liquidation scenarios
• Estimates slippage costs
• Identifies optimal execution windows

Implementation Framework

The 5-Point Liquidity Check

1. Average daily volume > position size
2. Bid-ask spread < 0.5% for core holdings
3. 3-month emergency cash reserve
4. Laddered maturities for fixed income
5. Regular liquidity stress tests

Common Liquidity Mistakes

• Overestimating capacity to exit
• Ignoring event-driven illiquidity
• Underestimating cash needs
• Chasing yield in illiquid assets

Portfolio Liquidity Metrics

• 30-day liquidation value
• Weighted average spread
• Cash flow coverage ratio
• Market impact cost estimates

QuantWave's liquidity tools help investors maintain proper portfolio fluidity. By systematically assessing and monitoring liquidity across all holdings, you can avoid costly traps while ensuring access to your capital when needed.