liquidity trading refers to the ease with which an asset can be bought or sold in the market without significantly affecting its price. High liquidity means there are many buyers and sellers, so trades can be executed quickly and with minimal price impact. This is typical in active markets like major stock exchanges. Conversely, low liquidity means fewer participants, making it harder to trade without affecting the price, often seen in less-traded assets. Liquidity is crucial for investors, as it allows them to enter and exit positions efficiently, reducing transaction costs and market risk.
