Choosing a good company does not guarantee that you can sell its shares when you need to. On a young exchange with few listed companies, the ability to find a buyer at a fair price matters as much as the company itself. You can estimate and manage this liquidity risk, although you cannot eliminate it. This article is general education, not advice about any company.
What liquidity means
Liquidity is how quickly you can buy or sell something without moving its price much. Cash is perfectly liquid. A house is not. Shares sit between the two, and where a particular share sits depends on how many people want to trade it.
A liquid share has buyers and sellers whose prices are close together, making it possible to sell near the quoted price. An illiquid share may go days without a trade. With few buyers, a seller may have to wait or accept less.
You can therefore judge a business correctly and still lose money if you cannot sell its shares at a fair price when you need the cash.
Why young markets are thin
The Ethiopian Securities Exchange began trading in January 2025. Several features make a market this new prone to thin trading.
Few listed companies. There are seven listed equities on this site's reference list as of October 2026, and six of them are banks. Fewer companies means less choice and less trading overall.
Few active participants. Many early shareholders hold their shares for the long term and do not trade. A share that is rarely offered for sale is hard to buy, and a share that is rarely bid for is hard to sell.
A small number of intermediaries. Trading goes through licensed trading members. The ESX has reported the admission of new members during 2026, and its release of 2 July 2026 gave the total as eight. Having more members tends to bring more orders and more competition.
Limited market making. A market maker stands ready to buy and sell, which narrows the gap between prices. Check whether any market maker is active in the share you are considering.
Investors are also still learning how the market works while its rules and tools continue to develop.
What thin trading looks like
Wide bid-ask spreads. The bid is the highest price a buyer is offering. The ask is the lowest price a seller wants. The gap between them is the spread. In a liquid market it is a fraction of a percent. In a thin one it can be many percent.
Days with no trades. If a share does not trade, its last price is simply the price of the last trade, which may be days or weeks old. The price on a screen may no longer describe anything you could do today.
Big moves on small volumes. A single order can move the price because there is little else in the book.
Stale prices. A price that has not changed for a week may mean stability or may mean nobody has traded.
Hard-to-sell positions. Selling a larger holding in a thin market can take days, or may mean accepting several different lower prices.
How the ESX trades, briefly
The ESX uses an electronic order book. Press reports on the exchange's trading manual describe a pre-open session from 9:00 to 9:30 in the morning, which sets an opening price through a single-price auction, followed by continuous trading from 9:30 until 3:00 in the afternoon. Orders match by price and time. Large block trades, defined in the manual as a single order worth a stated share of the issuer's market value, are negotiated and executed outside the central order book with the exchange's approval. Check the current manual for the figures and for any rules on how far a price may move in a day, because the sources we could read did not state them.
In a continuous order book, you can trade only at prices that someone else has entered. A thin book may contain few orders that match yours.
How to measure it
No single measure captures liquidity. When published trading data is available, use several of the following measures together.
Average daily volume and value traded. How many shares, and how much money, change hands on a typical day.
Number of trades per day. Many small trades suggest broad interest. A few large ones suggest concentrated activity.
Days traded. Out of 20 trading days in a month, on how many did the share trade at all? A share that traded on 12 of 20 days was traded on 60 percent of days.
Bid-ask spread as a percentage. The spread divided by the midpoint of bid and ask.
Your order relative to normal volume. If you want to sell 5,000 shares and the share typically trades 500 a day, your order is ten days of trading.
Where the data is published, show the dates and the source. On this site, a price is always labeled with its source and date, and volume or value traded is shown only where a source publishes it.
A worked example with invented numbers
The risks it creates
- You may not be able to sell when you need to. Needing money for a family or business emergency is exactly when a thin market hurts.
- You may have to accept a lower price. The price you receive can be well below the last quoted price.
- The quoted price may not be a price you can trade at. A last trade can be small, old or unusual.
- Valuation is harder. When few trades happen, the price carries less information about what the company is worth.
- Prices can be influenced. In a thin market, one large buyer or seller can move the price more easily. That is a reason to be careful about sudden jumps without news.
Practical ways to manage it
- Invest only money you will not need soon. This is the most effective protection. If you can hold for years, you do not need to sell on a bad day.
- Size positions so you can hold them. Do not put so much into one share that selling it would take days.
- Use limit orders. A limit order sets the worst price you will accept. A market order takes whatever is available, which in a thin book can be a poor price.
- Break up large orders. Sell or buy in smaller pieces over several days where that is practical.
- Do not chase sudden moves. A price that jumps on little volume may fall back as quickly.
- Keep an emergency fund outside the market, in bank deposits or other easily available forms.
- Spread your money across several companies and kinds of assets, including savings and government securities. Our article on government securities explains one of them.
- Ask your provider. A licensed provider can tell you how an order would be handled and what the settlement timing and fees are.
What improves liquidity over time
Liquidity can improve as more companies and types of securities are listed, and as additional trading members distribute them through licensed providers. Market makers can help by quoting both buy and sell prices.
Regular participation by ordinary investors adds more orders to the market. Institutional investors, including pension and insurance funds, can trade larger amounts. Broader access may also help, including access for investors abroad where the rules allow it. Check the current rules on who may invest and how.
Liquidity usually improves gradually as more companies list and more people participate, but it can remain uneven across companies.
Common mistakes
- Treating the last price as the value of your holding. It is the price of one trade, not the price at which you can sell all you own.
- Judging a share only by its price change. A move on tiny volume may mean little.
- Assuming you can sell at any time. Trading hours, order matching and settlement all take time.
- Ignoring the spread. A wide spread is a cost you pay every time you buy and sell.
- Putting in a large market order. In a thin book, it can walk down the prices.
Where liquidity connects with other risks
A thin market is easier to manipulate and attracts people who promise quick profits. Our guide on how to spot investment scams covers the warning signs. It also affects how you value a bank or other company, which is why our bank-analysis guide uses audited results and not the latest price alone.