Market Liquidity

A liquid market has many buyers and sellers, high trading volumes, narrow gaps between buying and selling prices and enough depth that large orders can be filled without large price changes. Major currency markets, large company shares and major government bonds are usually highly liquid.

An illiquid market has few participants, wide gaps between prices and little depth. Shares of small companies, some corporate bonds, property and private investments are less liquid.

For example, an investor can usually sell 100,000 worth of shares in a large international company within seconds at close to the quoted price, but selling the same amount of a small company's shares might take days and push the price down.

Market liquidity can change quickly. During periods of stress, buyers may disappear and liquidity can dry up even in normally liquid markets, as happened in some bond markets in March 2020. Investors often demand higher returns for holding less liquid assets, known as an illiquidity premium.