Let's talk Liquidity... The Bid & Offer Spread


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!

At EasyEquities, prices displayed on the platform are delayed. However, trades are executed at the live price on the underlying exchange at the time your order is placed, which means that the price you invest at may sometimes differ from the price initially displayed. You'll be investing at the offer price (the price at which the sellers are prepared to sell). So you're actually dealing with three prices here: the displayed price, the live price, and the offer price. The difference between all three is how you can work out the current interest that investors have in this share. This will give you a good indication as to its importance.

So what to look out for? Well, a good share is characterized by the ability it would give you to both enter and exit at a good price, or alternatively, you'd never even need to sell it.

If you'd like to learn more about liquidity, take a look at this quick, easy-to-understand video by clicking here.