Trading glossary
Liquidity describes how easily an asset can be bought or sold without significantly moving its price. Learn what makes a market liquid, explained neutrally.
Liquidity describes how easily an asset can be converted to or from cash without moving its price much. A highly liquid market has many active buyers and sellers, so orders can usually be filled quickly and close to the last traded price. A thin, illiquid market can see larger price swings from smaller orders.
Signs often associated with liquidity include a narrow gap between the highest bid and lowest ask, steady trading volume, and depth in the order book. Major assets during active hours tend to be more liquid, while smaller or less-traded instruments, or off-peak hours, tend to be less liquid.
Liquidity affects how smoothly a market functions and how much prices can move when large orders arrive. In less liquid conditions, the difference between an expected and an actual fill price can widen. Liquidity is a descriptive property of market conditions and can change over time and across venues.
Volume measures how much traded over a period, while liquidity describes how easily you can trade without moving the price. High volume often accompanies liquidity, but they are separate ideas measured differently.
A narrow spread between the highest bid and lowest ask usually means many participants are willing to trade near the current price, so orders can fill close to expectations. Wider spreads often signal thinner, less liquid conditions.