What Is Liquidity? Meaning & Example
Definition
Liquidity describes how easily an asset can be bought or sold quickly without greatly moving its price. Highly liquid markets have many buyers and sellers and tight spreads.
Related terms
The spread is the difference between the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask). Narrow spreads usually mean lower trading costs.
VolumeVolume is the number of shares, contracts or coins traded in a given period. Volume helps show how much participation and conviction sits behind a price move.
SlippageSlippage is the difference between the price you expected and the price your order actually filled at. It is more common in fast or thin markets.
What is Liquidity?
Liquidity describes how easily an asset can be bought or sold quickly without greatly moving its price. Highly liquid markets have many buyers and sellers and tight spreads.
Can you give an example of Liquidity?
A large, heavily traded stock can be sold in seconds near its quoted price, while a rare collectible may take weeks.