Markets & trading
Market liquidity is the ability to trade a useful quantity promptly without moving the price greatly. It depends on size, cost, speed and current market conditions.
Make it click
A narrow doorway may let one person through easily but not a crowd or large object. The useful question is whether the available opening fits the size and urgency of the trade.
Now put that into markets
Tight spreads, meaningful depth and resilient quotes often indicate liquidity. The same asset can become much less liquid during stress or outside its main session.
Liquidity arises from natural buyers and sellers, intermediaries, venue design and information conditions. It is observed through execution, not captured by volume alone.
Compare spread, order-book depth, typical trade size, turnover and price impact at the intended time. Use percentage and monetary measures together.
Displayed depth can disappear and historic liquidity may not survive a shock. A liquid wrapper can also hold less-liquid underlying assets.
Takeaway
