Discussion in 'Trading' started by Little Nickey, May 22, 2001.
Thanks for the help!
z, I agree that liquidity and volume often go hand in hand, along with tighter spreads, but I think liquidity means a little more than that. Liquidity basically refers to how much you can buy or sell without affecting the market.
That's why big funds like liquid stocks -- they can get into them without driving up the price as they are buying, and get out without driving them down. Take the example of a stock that is falling fast. There may be lots of sellers and not many buyers (buyers are backing off the bid quickly), so the volume is high, but the liquidity is low (hence the falling price). One last thought.. think about liquidity as in "liquid net worth" or "liquid assets." That basically refers to how easy it is to convert the asset(s) to money and vice versa.
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