Liquidity is the ability of an asset to be quickly bought or sold on the market without a significant change in its price.

Main characteristics of liquidity

High liquidity: fast transactions, minimal spread between purchase and sale prices.

Low liquidity: slow trades, wide spreads, risk of sudden price jumps with large orders.

It is measured by trading volume and the density of orders in the order book.

Examples of liquid and illiquid assets

Highly liquid assets: EUR/USD currency pairs, Apple shares, gold.

Low-liquid assets: small cryptocurrencies, shares of little-known companies (penny stocks).

Practical guidelines for traders

For a beginner, it is safer to start with liquid instruments.
Before entering a trade, check the trading volume.

Avoid assets with very wide spreads.

Why liquidity matters when entering and exiting

Liquidity is your “safety belt” when entering and exiting a trade. The higher it is, the lower the risk of slippage and unexpected losses.