Liquidity is the central quality criteria for the efficiency of marketplaces in electronic securities trading. Liquid markets are for the benefit of investors as they allow exchanging cash and equities at minimum trading costs. Generally speaking, liquid assets can be converted immediately and at minimal costs into cash and vice versa.
As of: 05/15/2008 Results in basis points for 25.000 € roundtrip
So far, liquidity has often been approximated by figures of trading activity for the sake of simplicity, e.g. turnover volumes,
number of trades or transaction frequency. But trading activity does not truly reflect liquidity on an instrument level. With the
Xetra Liquidity Measure (XLM), Deutsche Börse now provides an innovative concept to assess liquidity in electronic order book trading
on the basis of implicit transaction costs. XLM measures the committed liquidity of the Xetra open limit order book by the Market Impact
costs, in other words the costs of a immediate demand for liquidity. Market Impact costs are paid by investors who demand liquidity and
are collected by investors who supply liquidity via limit orders. The provision of liquidity is thus rewarded and every transaction on a
securities market leads to a redistribution of the Market Impact costs from investors demanding liquidity to investors supplying liquidity.
XLM quantifies these Market Impact costs in a single figure. The measure is calculated since July 2002 over the whole trading day for every
instrument in continuous trading on Xetra. The lower the XLM the less Market Impact costs arise trading an instrument, the higher is the
instrument’s liquidity and efficiency in order book trading.
The Xetra Top Liquids are determined by means of the Xetra Liquidity Measure. The XLM is presented in basis points
(100 basis point = 1 percent) in relation to the Market Impact costs of a certain order volume for the round trip
(opening and closing a position in one point of time). For example, a XLM of 10 basis points and EUR 25,000 order volume means that the
Market Impact costs of buying and selling a certain instrument are equal to EUR 25. Deutsche Börse provides the Xetra Top Liquids on daily
figures for the last trading day.
Please find more detailed information in the article “The Market Impact – Liquidity Measure in Electronic Securities Trading“.
