Summary
Liquidity measures how actively a share is traded and how easily it can be bought or sold without significantly affecting its price. A more liquid share usually has more buyers and sellers, higher activity, and smoother trading.
Liquidity is especially important in smaller markets where some securities may trade less frequently.
Why it matters
Liquidity can affect how quickly an investor can enter or exit a position and the price they may receive when trading. Less liquid shares may have wider price movements, fewer available buyers or sellers, and higher execution risk.
For investors, liquidity is an important part of understanding trading practicality, not just investment quality.
How to read it
Higher liquidity generally means a share is easier to trade. Lower liquidity may mean that buying or selling a meaningful amount could take longer or affect the market price.
Investors should review volume, traded value, number of trades, and average volume together.