Liquid Market

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DEFINITION of 'Liquid Market'

A market with many bid and ask offers, low spreads and low volatility. In a liquid market, it is easy to execute a trade quickly and at a desirable price because there are numerous buyers and sellers. In a liquid market, changes in supply and demand have a relatively small impact on price. The opposite of a liquid market is called a "thin market" or an "illiquid market."

BREAKING DOWN 'Liquid Market'

The market for the stock of a Fortune 500 company would be considered a liquid market, but the market for a family-owned restaurant would not. The largest and most liquid market in the world is the forex market, where foreign currencies are traded. The U.S. dollar is the most liquid currency in this market. Nearly every central bank and institutional investor in the world holds U.S. dollars, and some foreign countries use it as an official or unofficial alternative to their local currencies or as an exchange-rate peg. The markets for the euro, yen, pound, franc and Canadian dollar are also highly liquid.

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RELATED FAQS
  1. How do notaries reduce asymmetric information risk?

    A notary acts as an intermediary who can help mitigate the problems caused by asymmetric information in economic transactions. ... Read Full Answer >>
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    Liquidity refers to how easy it is to buy and sell shares without seeing a change in price. If, for example, you bought ... Read Full Answer >>
  3. Is scalping a viable forex trading strategy?

    Scalping in the forex market involves trading currencies based on a set of real-time analysis. The purpose of scalping is ... Read Full Answer >>
  4. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  5. Where did the term 'pip' in currency exchange come from?

    The term pip is an acronym for percentage in point or price interest point. It measures a unit of change within a pair of ... Read Full Answer >>
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