The liquidity of the futures contract used in a hedge is very important to the hedger.

Question

Quizplus · Accepted Answer

The liquidity of the futures contract used in a hedge is important to the hedger because it impacts their ability to enter and exit the market quickly and at a fair price. A low-liquidity futures contract may have wider bid-ask spreads, making it more expensive for the hedger to trade and potentially resulting in slippage during execution. Additionally, a highly illiquid contract may not offer enough trading volume for the hedger to effectively manage their position.

The Liquidity of the Futures Contract Used in a Hedge