Purpose/SignificanceLiquidity is the life of security market, and understanding the relationship between liquidity and asset pricing is the core of understanding the financial crisis. The occurrence of China’s stock market crash in 2015 made liquidity become the focus of attention, and triggered a reflection on how relevant trading mechanisms affect market liquidity in the process of market crash as well.

Design/MethodologyBy systematically reviewing the research literature related to the liquidity of the securities market, including the definition of liquidity, the measurement of liquidity, the relationship between liquidity and asset pricing, and the resonance of liquidity and its influencing factors, the paper analyzes the micro-mechanism of the 2015 stock market disaster . The mechanism of leveraged trading and the limit of price fluctuations in the course of the stock disaster has been analyzed and reviewed.

Findings/ConclusionThe forced liquidation mechanism of leveraged trading has caused the stock market to form a serious "liquidity spiral" effect in the downward process, and the price limit has further exacerbated the depletion of liquidity in the market, which eventually led to the stock market disaster.