Liquidity refers to how quickly and easily you can buy or sell a stock without causing a significant change in its price.
A stock with high liquidity has plenty of active buyers and sellers, allowing trades to happen efficiently and at transparent prices.
Why Is Liquidity Important?
1. Faster & Smoother Trades: High liquidity means you can enter or exit positions quickly, without delays.
2. Fair Pricing: The bid-ask spread is narrow, so you’re more likely to buy or sell close to the market price.
3. Lower Execution Risk: You’re less likely to face large price slippage while trading.
4. Market Efficiency: Liquid stocks tend to reflect their true value more accurately due to constant trading activity.
5. Scalability: For large investors and institutions, liquidity is crucial for handling big volumes without disrupting the market.
Highly liquid stocks include blue-chip companies, Nifty 50 constituents, and most large-cap stocks.
Illiquid stocks, often smaller or lesser-known ones, may have low trading volumes, wider spreads, and higher volatility — making it harder to trade quickly or at favorable prices.
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