Liquidity – it's a phrase often thrown about, but many investors don't have a firm grasp as to what it actually means. In a nutshell, liquidity refers to the degree to which a share can be bought or sold in the market, without its price being affected. When there's a high level of trading activity, it can be said that the market is very liquid. Shares that can be easily bought or sold are referred to as being 'liquid'. When there is not a lot of value being traded day by day, then the market is said to be of low liquidity. It's important to be cautious when trading shares with lower liquidity – you don't want to find yourself stuck with a share you can't get rid of!