Trading the US market
Liquidity
Definition
Liquidity is how easily you can buy or sell without moving the price. Highly liquid names such as SPY trade millions of shares a day with tight spreads, while illiquid stocks have wide spreads and can jump on a single order.
Example
Suppose you need to sell 5,000 shares. In a stock that trades 20 million shares a day with a 1-cent spread, your order is a tiny part of the flow and fills within a cent or two of the bid. In a stock that trades only 30,000 shares a day, the same order is a sixth of the whole day’s volume and could push the price down several percent.
Hypothetical numbers, for illustration only.
Also defined in
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