Liquidity
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
The ability to trade quickly, in large size, at low cost. A multidimensional concept encompassing immediacy, width, depth, and resiliency.
Liquidity in plain English
Liquidity is really just how easy it is to turn something into cash (or cash into something) without hassle or loss. A popular concert ticket is liquid — you can sell it in seconds at a fair price — while a used couch is not, because finding a buyer takes days and you'll probably slash the price. Traders break "easy" into four flavors: immediacy (can I trade right now?), width (how small is the gap between the buy and sell price?), depth (can I trade a LOT without moving the price?), and resiliency (after a big trade, how fast does the price bounce back to normal?). The more of all four you have, the more liquid the market.
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