Market Liquidity
The ease with which an asset can be bought or sold quickly at a fair price without significantly affecting its market price.
What is Market Liquidity?
Market liquidity describes how readily an asset can be converted to cash at a stable price. A highly liquid market — such as large-cap US equities — allows large transactions to execute quickly with minimal price impact and narrow bid-ask spreads. Illiquid markets — such as small-cap stocks, real estate, or private equity — involve wider spreads, longer execution times, and greater price concessions. Liquidity has two dimensions: market depth (the volume of orders at various price levels) and market breadth (the number of active participants). Liquidity risk is the danger that an investor cannot exit a position quickly enough or at a fair price. Central banks and market makers play a key role in maintaining liquidity during periods of stress.
Example
During the March 2020 COVID crash, even normally liquid US Treasury bonds temporarily became illiquid as investors rushed to sell. The Federal Reserve intervened by purchasing Treasuries to restore market function — illustrating that liquidity is not a permanent property but can evaporate during crises.
Source: Investopedia — Market Liquidity