Liquid Market

Definition

The term liquid market refers to a marketplace characterized by robust trading, narrow bid and ask spreads, and low transaction costs.  Liquid markets can also accept relatively large trades and not experience significant price swings.

Explanation

A liquid market is one where there are many buyers and sellers, transaction costs are low, prices are not volatile, and the difference between the price a seller will accept for an asset and a buyer is willing to pay is relatively small.  Dealing in a liquid market is important for an investor because they can be assured they will be paid a fair price when buying or selling an asset.

Any of the world's large stock exchanges would be considered a liquid market.  High volumes of securities are exchanged electronically, buy and sell orders are completed instantaneously, and transaction fees are a small percentage of the order value.  In addition to stock exchanges such as the New York Stock Exchange and the NASDAQ, liquid markets would also include futures and commodities exchanges.

Related Terms

support, resistance, leg, breakout, pin risk