Market liquidity
In one sentenceHow easily an asset or security can be sold quickly at a price close to its value without moving the price much, shown in trading volume and a narrow gap between bid and ask prices.
Simply put
A large company's stock traded daily in large volumes can be sold in minutes. Land in a remote area or a thinly traded stock may take a long time to sell, or you may accept a lower price to sell.
A simple indicator: the gap between the highest price buyers offer and the lowest price sellers ask. The narrower the gap, the higher the liquidity.
Worked example
Two stocks with similar prices: the first has a highest bid of 50.00 SAR and a lowest ask of 50.10, and the second has a highest bid of 48 SAR and a lowest ask of 50.
First stock's spread(50.10 − 50.00) ÷ 50.10 ≈ 0.2%
Second stock's spread(50 − 48) ÷ 50 = 4%
The more liquid stockThe first (spread of 0.2% vs. 4%)
Formula: (Ask price − bid price) ÷ ask price
Don't confuse it with
LiquidityA business's liquidity is its ability to meet its short-term obligations, while market liquidity is how easily an asset can be sold in the market.