GLOSSARY TERM
Liquidity
Liquidity means how easily an investment can be bought or sold without causing a large change in its price.
What does this mean in practice?
If an investment has high liquidity, there are usually many buyers and sellers in the market. This makes trading easier, faster and often cheaper. If liquidity is low, it may be harder to buy or sell at the price you expect. Low liquidity can also lead to a wider bid-ask spread.
Example
A large, widely traded ETF usually has high liquidity, so buying or selling is often simple. A small investment with very little trading activity may have lower liquidity, which can make trades slower or more expensive.
Why it matters
Liquidity affects how easily you can invest and what hidden trading costs you may face. For long-term investors, widely traded funds and ETFs are often easier and more efficient to use than less liquid alternatives.
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