Liquidity

Liquidity describes how easily an asset can be converted to cash, or moved between parties, without significantly affecting its price. Cash is fully liquid. Widely held stocks or major currencies trade often, with many buyers and sellers, so they are considered liquid. Assets that trade rarely, such as property or a niche collectible, are less liquid, because a quick sale may mean accepting a lower price.

It also refers to the pool of funds available to trade in a market. A market with deep liquidity has enough standing orders or pooled capital that a trade fills near the quoted price. Thin liquidity may move sharply when one large order arrives.

Liquidity affects the cost of entering or exiting a position. When it is thin, the gap between buying and selling prices can widen, and large trades can face slippage, filling at a price away from the quote.