What is a Liquid Market?

Liquid market refers to any market in which there are many buyers and sellers present and in which transactions can take place with relative ease and low costs.

How Does a Liquid Market Work?

A liquid market refers to any market which is always available and liquid, or clear and free flowing.

An example would be a major exchange of the U.S. stock market, such as the New York Stock Exchange (NYSE), where for any given stock many millions of shares may change hands between buyers and sellers every day. Moreover, such high volume of exchange occurs with relative ease in transaction settlements and with low transaction fees. Other examples of liquid markets would include eBay and commodities markets.

By way of contrast, home buying is not a liquid market as there are a limited number of buyers and sellers, and the transactions are often more complex and costly.

Why Does a Liquid Market Matter?

It is prudent for a prospective owner of an asset to understand which kind of market he is buying into as well as the salariality of the asset in that market. A liquid market will often add value to the assets that sell in that market. A liquid market also tends to minimize the degree of price fluctuations of assets in that market.