Glossary · from the DESK dictionary
Liquidity
How easily an underlying can be traded without materially affecting its price.
In plain words
High liquidity means: many buyers/sellers, tight spreads, large orders tradable without much price impact.
In more detail
Liquidity is often measured via trading volume, spread width, and order-book depth. Low liquidity raises the risk of slippage, especially for larger positions.
Example
Large index stocks like Apple are considered highly liquid; small-cap names are often significantly less liquid.
What it means for traders
A fundamental concept for position-sizing decisions and execution strategy.
Common pitfalls
Low liquidity can dry up abruptly during periods of stress, making exits substantially harder.
Related terms
After-Hours Trading · Auction Rate Security (ARS) · Average Daily Trading Volume (ADTV) · Bid-Ask Spread · Dark Pool · Emergency Fund · Free Float · Liquidity Reserve · Liquidity Risk · Market Depth · Market Impact · Market Maker · Scalping · Short Selling · Slippage · Thin Market
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.