What does Liquidity mean?

Liquidity is how easily a stock can be bought or sold without moving its price — highly liquid stocks trade often with tight bid-ask spreads.

A liquid stock has lots of buyers and sellers at any given moment, so you can trade in or out at a fair price without moving the market yourself. Illiquid stocks — often small-caps with low volume — can have wide bid-ask spreads and big price jumps on even modest-sized orders.

Liquidity example

A large company trading 50 million shares a day lets you buy $5,000 worth instantly at a spread of a cent. A tiny stock trading 20,000 shares a day might have a 2% spread and move when you place your order.

Common beginner mistake

Buying a thinly traded stock without a plan to sell. When you need to get out, there may not be enough buyers near the last price.