Free Trading School · Level 2: How Prices Move
Liquidity and volatility
Liquidity is how easily you can buy or sell without moving the price. A highly liquid market has many buyers and sellers at every moment, tight spreads and smooth fills. An illiquid market can jump when a single large order arrives.
Volatility is how much and how fast price moves. High volatility means bigger opportunities and bigger risks. A stock that moves 5% a day needs a smaller position than one that moves 1% a day for the same risk.
- Volatility rises around news, earnings and market opens.
- It often clusters: calm periods are followed by calm periods, wild periods by wild periods.
- Indicators such as the Average True Range (ATR) measure it and help place stops.
Adjust your position size to volatility. Bigger swings call for smaller positions, never wider hope.
Quick answers
Liquidity is how easily you can buy or sell without moving the price. A highly liquid market has many buyers and sellers at every moment, tight spreads and smooth fills. An illiquid market can jump when a single large order arrives.
Adjust your position size to volatility. Bigger swings call for smaller positions, never wider hope.
Liquid. Liquidity means plenty of buyers and sellers, so orders fill easily at fair prices.
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