What is Liquidity?

Liquidity describes how easily and quickly you can buy or sell a share without changing its price too much. A highly liquid stock has lots of buyers and sellers, so trades happen smoothly at or close to the current price. A less liquid stock might only have a few people trading, meaning you may need to wait longer or accept a worse price to complete your order.

On the ASX, large companies like BHP or Commonwealth Bank are very liquid. Thousands of trades occur every day, so you can enter or exit positions quickjly. On the other hand, small mining explorers or start-up companies might only see a handful of trades. In those cases, selling can be harder, and the price may move sharply if you try to offload a big parcel of shares.

Liquidity matters becasue it affects flexibility and risk. If you hold highly liquid shares, you can adjust your portfolio quickly in response to market changes. If you hold illiquid shares, you may feel “stuck” and unable to sell without taking a hit. For beginners, focusing on liquid companies reduces suprises and makes the investing experience smoother.