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A market maker provides liquidity in warrants by providing continuous buy and sell quotes for investors to enter and exit their positions. When trading with warrants, liquidity corresponds more on the bid and offer volumes, as well as the price spreads provided by the market maker. This means that even a warrant with zero traded volume can be liquid if the market maker is providing high liquidity.
As investors may buy or sell warrants in larger quantities, high liquidity is optimal for you to enter and exit your positions with ease. If a warrant has low liquidity, you may not be able to transact at your desired price and time. You may have to wait for other investors’ orders to be executed if you are not the first in queue. The warrant’s price may move in the interim, causing you to incur a loss or lower profits.
Further, it is important to choose a warrant on tight spreads, which for warrants priced below RM1.00 would mean a RM0.005 difference between the bid and offer price. For example, a warrant priced at a bid/offer price of RM0.070/RM0.075 in on tight spreads, whereas a warrant priced at a bid/offer price of RM0.070/RM0.085 is on wide spreads. You would incur a higher cost when you buy a warrant on wide spreads as you would need the warrant’s bid price to move by a larger percentage before it reaches your initial purchase price.