DEFINITION of 'Dollar Volume Liquidity'

A stock or exchange-traded fund's share price times its average volume. Dollar volume liquidity is important to institutional investors because they make such large trades. When a stock is highly liquid, it is easy to enter and exit positions and easy to buy and sell without influencing the stock's price. There will also be a very small bid-ask spread. Dollar volume liquidity is also important to small cap investors because small company stocks may not have the same liquidity that investors can take for granted with a large cap stock.

BREAKING DOWN 'Dollar Volume Liquidity'

When there is a high level of investor interest and a stock or ETF is traded on a major exchange, it will tend to be highly liquid. High dollar volume liquidity is generally a positive sign, but investors employing certain strategies, such as trying to get into a stock before it becomes popular, might actually prefer stocks with low dollar volume liquidity. Another way of looking at the ease of buying and selling a stock is share volume liquidity, which is simply the number of shares traded in a day.

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