Liquidity Definition

Liquidity Definition

Learn the definition of liquidity and other ETF terminology from the glossary.

Reviewed by: Staff
Edited by: Staff

Learn more about Liquidity

Liquidity in ETFs is the lifeblood of efficient markets, representing the ease with which investors can buy or sell shares without significantly impacting the asset's price. Highly liquid ETFs exhibit tight bid-ask spreads and ample trading volume, offering investors a cost-effective gateway to market participation. Beyond the basic concept of tradability, liquidity ensures that investors can swiftly execute trades, contributing to price stability and minimizing the impact of transaction costs. In essence, liquidity transforms ETFs into accessible, dynamic instruments, enhancing their attractiveness for investors seeking efficiency, flexibility, and the ability to swiftly navigate changing market conditions.

Related Terms

ETF Glossary is’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.