Liquidity describes how easily an asset can be bought or sold without sharply affecting its price.
Liquidity refers to how quickly and smoothly an asset can be traded. A highly liquid market has many active buyers and sellers, so trades can be entered and exited easily and prices tend to move in an orderly way. A market with low liquidity has fewer participants, which can make it harder to trade and can cause prices to jump more sharply. Liquidity matters to traders because it affects how easily they can get in and out of positions and how stable prices are. It is closely linked to the spread — more liquid markets usually have tighter spreads.
Think of liquidity like selling something you own. A popular item with many interested buyers can be sold quickly at a fair price — that’s high liquidity. A rare, niche item might take a long time to sell and force you to drop the price — that’s low liquidity. Markets work the same way.
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