What is liquidity in trading?

Summary

Liquidity is how easily an order can trade without materially moving the price. It depends on factors such as spread, depth and the availability of counterparties.

Definition

Liquidity in trading means the practical ability to buy or sell without causing a large price move. The article explains that a liquid market can often absorb an order more easily, while a thin market may not have enough displayed size or counterparties at the current prices. This matters because liquidity helps determine whether an order fills quickly, whether it fills at one price or several, and how much slippage a trader may experience. In practical terms, better liquidity usually supports smoother execution, but it does not guarantee a single price for a larger order.

Sources

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