Thick or thin markets
To some extent, the choice between thick and thin markets is a personal one and perhaps even a personality choice. Different markets suit different people after all.
A thick market is one with lots of liquidity and lots of resting orders at each bid and offer level on the depth of market. By ‘lots’, I mean thousands of contracts at each level. This liquidity means that market orders need to take time to chew through those limit orders. The markets are more orderly, they do not whip around as much and they stay in one place for longer; giving you more time to read the tape, consider the order flow and the price action. As these markets are slower, they might be considered a bit boring to some people.
A thin market is one with relatively little liquidity and few resting orders at each bid and offer level on the depth of market trading. For a thin market the number of resting limit orders at each level is in the 10’s or low 100’s. With such a small amount of liquidity to chew through, it doesn’t take many market orders to initiate a move. Thin markets are much more volatile putting in large intraday moves and many intraday swings. These markets are definitely more exciting to watch.
In terms of market depth, there are some differences. It is safer to spoof a thick market. Spoof or fake orders are put out there to create a picture of strength or weakness. In a thick market, it is quite safe to put out a fake order because with thousands of orders ahead of you, the chances of being filled on your order before you pull it are slim. With a thin market this is not the case, if there is only 50 orders in front of you, it is far too dangerous to put out fake orders that you do not really want to be filled on.
Some people simply get along better with the thinner markets and some people get along better with thick ones. For the new trader, it is a good idea to set aside some time to look at the price action and order flow trading of thin and thick markets before deciding which to focus on. For thick markets, the US Treasuries are the thickest followed by the e-mini S&P500. For thinner markets good choices are Crude Oil, Nasdaq, Dow futures. Markets like the Euro Futures and Corn are somewhere in the middle.
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