“Liquidity eats liquidity” is a phrase that is often used to describe the way that liquidity can be both created and destroyed in financial markets. The idea behind the phrase is that when there is a high level of liquidity in the market (or in a specific instrument, for example, nifty) , it can attract more traders and investors to that particular market or instrument, which in turn can create even more liquidity. However, when liquidity starts to dry up, traders and investors may become more cautious and start to pull back, which can lead to a decline in liquidity.
The idea behind this phrase is that, in the market (or in a specific instrument) , when there is a high level of liquidity, it tends to attract more traders and investors, which in turn creates more liquidity. This creates a positive cycle of more liquidity attracting more traders, which in turn attracts more liquidity. This is what is meant by “liquidity eats liquidity” in a positive way.
However, when liquidity starts to dry up, traders and investors may become more cautious and start to pull back, which can lead to a decline in liquidity. This creates a negative cycle of less liquidity attracting less traders, which in turn attracts less liquidity. This is what is meant by “liquidity eats liquidity” in a negative way.
This phrase is used to remind that liquidity can be both a positive and negative aspect in the markets or for a specific instrument, and that traders should be aware of the potential for liquidity to both create and destroy value in financial markets.