Liquid Market

AAA

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."

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Spread

    1. The difference between the bid and the ask price of a security ...
  2. Volume

    The number of shares or contracts traded in a security or an ...
  3. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  4. Thin Market

    A market with a low number of buyers and sellers. Since few transactions ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Market-On-Close Order - MOC

    A non-limit (market) order executed as close to the end of the ...
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 >>
  2. What number of shares determines adequate liquidity for a stock?

    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. 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 >>
  5. How do changes in national interest rates affect a currency's value and exchange ...

    All other factors being equal, higher interest rates in a country increase the value of that country's currency relative ... Read Full Answer >>
  6. What is the difference between pips, points, and ticks?

    Point, tick and pip are terms used to describe price changes in the stock market and other markets. While traders and analysts ... Read Full Answer >>
Related Articles
  1. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  2. Active Trading

    Understanding Liquidity Risk

    Make sure that your trades are safe by learning how to measure the liquidity risk.
  3. Options & Futures

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
  4. Mutual Funds & ETFs

    ETF Liquidity: Why It Matters

    Lower levels of liquidity in exchange-traded funds make it harder to trade them profitably.
  5. Investing Basics

    Understanding Non-Deliverable Forward (NDF)

    A foreign exchange hedging strategy where the parties agree to settle the profit or loss in a foreign currency futures contract before the expiration date.
  6. Forex Education

    How To Lock In An Exchange Rate

    Currency risk can be effectively hedged by locking in an exchange rate through the use of currency futures, forwards, options, or exchange-traded funds.
  7. Forex Education

    Top Economic Factors That Depreciate The $US

    A variety of factors contribute to currency depreciation, including monetary policy, inflation, demand for currency, economic growth and export prices.
  8. Economics

    Can The U.S Close Its Trade Deficit?

    The stronger dollar could have increased the U.S. trade deficit. Instead, economic growth issues abroad and falling oil prices have helped shrink it.
  9. Forex Education

    What Are IMF Special Drawing Rights?

    Technically, the SDR is neither a currency, nor a claim on the IMF itself.
  10. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center