Liquidity
Also called: liquid, illiquid
How easily an asset can be bought or sold quickly, in meaningful amounts, without moving its price much.
A liquid share has many buyers and sellers, a narrow spread and a deep order book. An illiquid share trades rarely, has a wide spread, and can move sharply on small orders.
Liquidity can vanish when it is most needed, for example during a market panic. Illiquid shares are also the usual vehicles for price manipulation.
Learn more in these lessons
- Bid, ask, spread and liquidityWhat are the bid price, ask price and spread?
- The risks of investing in sharesWhat are the risks of investing in the stock market?
- Pump-and-dump schemesHow does a pump-and-dump scheme work?
- Risk, return, liquidity and time horizonWhy do higher returns come with higher risk?
- Trading volume and liquidity on chartsWhat does trading volume on a chart tell you?
- RBI monetary policyHow does the RBI try to control inflation, and how does it affect markets?
- Liquidity and slippage in derivativesWhy can't you always exit an options position at the last traded price?
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