Markets
Liquidity
How easily an asset can be bought or sold without significantly affecting its price. Highly traded stocks are highly liquid.
Example
A mega-cap stock trading tens of millions of shares a day can absorb a large buy or sell order with almost no price impact; a thinly traded micro-cap stock can move 5%+ on a single sizable trade.
Common Misconception
People sometimes equate a low share price with an easy, low-cost trade — share price and liquidity are unrelated; a $5 stock can be far less liquid, and costlier to trade, than a $500 one.
Why It Matters
Low liquidity widens bid-ask spreads and increases the risk of a bad fill, a real cost worth factoring in before buying small, thinly traded stocks.