The Fed balance sheet minus the Treasury account and reverse repo: the cash actually available to assets.
What liquidity is
Net liquidity (Net Liquidity) estimates how much cash fuel is actually available to markets from the Federal Reserve balance sheet: balance sheet assets minus what is locked outside the game, the Treasury General Account (TGA) and reverse repurchase agreements (RRP). What remains is the cash chasing assets.
Why markets move with it
Because excess cash in the banking system looks for yield: when Net Liquidity expands, it finds its way into risk assets, which can rise regardless of earnings. When it contracts, the fuel is pulled and valuations fall "for no visible reason". The link isn't a law of physics, but it has been one of the heaviest backdrops of the last decade.
Its three components are read separately
The balance sheet moves at the pace of announced programs, but TGA and RRP swing weekly with Treasury funding decisions and fund behavior. Rebuilding TGA after a debt-ceiling increase, for example, can absorb tens of billions in liquidity within weeks. That is real tightening that appears in no rate statement.
Hypothetical example
The Fed shrinks its balance sheet, but RRP drains faster, so net liquidity expands despite the announced "tightening". Stocks rise and confuse anyone reading only headlines. A reader who tracks all three components saw the fuel flowing in through the back door.
Common mistake
Using it as a daily timing trigger: it is a weekly and monthly tide that sets the backdrop · it tilts the environment but does not time the trade, and trading on it alone is like sailing by the tide without watching the wind.
Why read its direction, not its level
An absolute number means little without something to compare it to. The meaning is in the weekly change: expansion means fuel entering the financial system, contraction means it is being drained. That is why it is drawn as a curve, not a number, and read as a backdrop that sets the weight of the environment, not a trigger that times a trade.
Where to see it on the platform
The Net Liquidity indicator computes it from Federal Reserve data with its three components shown, along with a verdict on its direction and the history of its turns.
The Net Liquidity indicator shows the three components and their path with a clear verdict.
