> did major markets ever really have a huge problem with lack of liquidity, 20 or 30 years ago before HFT?
Yes. huge problems. 20 years ago (1992) stocks were traded in 1/8ths or 1/4s (minimum spreads of (12.5 or 25 cents) often more than one tick wide. By the turn of the century stocks had all been decimalized (traded in pennies) but spreads were still wide.
This article: page 25 of this paper[1] shows the average stock spread of S&P500 stocks being squished from 8cents in 1997 to less than 2cents in 2010.
When you read this comment, keep in the front of your mind that the "width of the spread" is marketspeak for "the fee paid by normal people who want to buy and sell long-term positions to have market professionals execute their trades for them". You want spreads as thin as possible.
Yes. huge problems. 20 years ago (1992) stocks were traded in 1/8ths or 1/4s (minimum spreads of (12.5 or 25 cents) often more than one tick wide. By the turn of the century stocks had all been decimalized (traded in pennies) but spreads were still wide.
This article: page 25 of this paper[1] shows the average stock spread of S&P500 stocks being squished from 8cents in 1997 to less than 2cents in 2010.
[1] www.kellogg.northwestern.edu/faculty/...d/murphy_kim_spread.pdf