Understanding Market Liquidity: A Guide for Investors

A liquid market holds sufficient trading volume so that you are able to execute a trade near the price that is available in the market. Liquidity is often a function of the size of the trade you wish to make. Larger share quantities require greater liquidity. However, for most retail investors, a liquid market allows them to trade easily and quickly. A hallmark of a liquid market is a small spread between the bid and ask prices. Often, the spread is little as one cent, or a penny. This means that if you are willing to give up one cent, you can fill your order immediately.