Glossary entry
Liquidity is the ability to transact in an asset promptly, in a desired size, with limited cost and price impact. Tight spreads, substantial available quantities, and consistent participation can indicate stronger market liquidity. The term also describes access to cash, so an investor's funding liquidity and an instrument's market liquidity are related but different concepts.
Illustrative example
A heavily traded share may absorb a small sale near its quoted price, while a much larger sale can still move through several lower bids.
What to consider
Liquidity can deteriorate suddenly during stress. Trading volume alone does not ensure enough buyers or sellers at the moment you need them.
General information, not a personal recommendation. Product availability, rights, and obligations are determined by the relevant provider, jurisdiction, and approved agreements.