Examples of liquidity
In a liquid market it is easy to execute a trade quickly because there are numerous buyers and sellers. For instance, with a daily trading volume of over $5 trillion, forex is considered the largest and most liquid market in the world.
Large stock markets, such as the New York Stock Exchange, are also considered highly liquid because thousands of shares change hands every day. But the liquidity of an individual stock can vary depending on factors such as its market capitalisation, the exchange its shares are traded on and whether it is included on an index. Usually blue-chip stocks such as Microsoft, Google and Apple will be extremely liquid.
Illiquid assets cannot be easily bought or sold, due to a lack of willing investors or speculators. Some small-cap stocks are likely to have less liquidity when compared to equities with larger market caps, especially those that trade over-the-counter (OTC), as there is significantly less market interest.
Other examples of illiquid assets include real estate, some forex pairs – especially emerging FX pairs and exotic pairs – and smaller cryptocurrencies.