What liquidity means
Liquidity is how quickly you can buy or sell without moving the price much. You can be right about a company and still lose if you cannot sell at a fair price when you need the money.
Stock Market Basics · Lesson 6 of 10
Risk and liquidity
Why you might not be able to sell, how to spot a thin market, and how to manage it.
6 minutes · 7 questionsLesson 6 · Card 1 of 4
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What liquidity means
Liquidity is how quickly you can buy or sell without moving the price much. You can be right about a company and still lose if you cannot sell at a fair price when you need the money.
Signs of a thin market
Wide gaps between the bid and the ask, days with no trades, prices that jump on tiny volume, and stale last prices. Each one is a warning that the price on the screen may not be a price you can use.
What a big order does
A large sell order has to be filled by several buyers. It takes the best bid first, then the next, so the average price you receive can be well below the last price.
Managing it
Invest only money you will not need soon. Keep an emergency fund outside the market. Use limit orders. Break up large orders. Spread your money across companies and kinds of assets.