The term liquid market refers to a marketplace characterized by robust trading, narrow bid and ask spreads, and low transaction costs. Liquid markets can also accept relatively large trades and not experience significant price swings.
A liquid market is one where there are many buyers and sellers, transaction costs are low, prices are not volatile, and the difference between the price a seller will accept for an asset and a buyer is willing to pay is relatively small. Dealing in a liquid market is important for an investor because they can be assured they will be paid a fair price when buying or selling an asset.
Any of the world’s large stock exchanges would be considered a liquid market. High volumes of securities are exchanged electronically, buy and sell orders are completed instantaneously, and transaction fees are a small percentage of the order value. In addition to stock exchanges such as the New York Stock Exchange and the NASDAQ, liquid markets would also include futures and commodities exchanges.