A market with many bid and ask offers, low spreads and low volatility.
In a liquid market, it is easy to execute a trade quickly and at a
desirable price because there are numerous buyers and sellers. In a
liquid market, changes in supply and demand have a relatively small
impact on price. The opposite of a liquid market is called a "thin
market" or an "illiquid market."
The market for the stock of a Fortune 500 company would be considered a
liquid market, but the market for a family-owned restaurant would not.
The largest and most liquid market in the world is the forex market,
where foreign currencies are traded. The U.S. dollar is the most liquid
currency in this market. Nearly every central bank and institutional
investor in the world holds U.S. dollars, and some foreign countries use
it as an official or unofficial alternative to their local currencies
or as an exchange-rate peg. The markets for the euro, yen, pound, franc
and Canadian dollar are also highly liquid.
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