Liquidity

Liquidity refers to how easily an asset—like a stock, option, or bond—can be bought or sold without significantly affecting its price. High liquidity means there are plenty of buyers and sellers, leading to tight bid-ask spreads and quick order execution. Low liquidity can result in wider bid-ask spreads and more price slippage. Stocks with high trading volume, such as Apple or Tesla, or contracts with high volume, are considered highly liquid, while small-cap stocks or thinly traded options may have lower liquidity, making them harder to trade efficiently.