Liquidity refers to the level of market interest — the level of
buying and selling volume — available at any given moment
for a particular asset or security. The higher the liquidity, or
the deeper the market, the faster and easier it is to buy or sel
a security.
From a trading perspective, liquidity is a critical consideration
because it determines how quickly prices move between
trades and over time. A highly liquid market like forex can see
large trading volumes transacted with relatively minor price
changes. An illiquid, or thin, market tends to see prices move
more rapidly on relatively lower trading volumes. A market
that only trades during certain hours (futures contracts, for
example) also represents a less liquid, thinner market.
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