A market is considered liquid when assets can be quickly bought or sold without causing significant changes in their prices. Liquidity is one of the most important features of a healthy financial market because it provides participants with the confidence that they can enter and exit positions efficiently. Several factors contribute to making a market liquid.

First, the number of buyers and sellers matters. A large pool of participants increases the likelihood of matching trades at fair prices. Second, trading volume plays a major role. Higher volume generally means tighter bid-ask spreads, reducing the cost of trading. When spreads are narrow, investors can transact without losing much value in the process.

Third, market transparency helps. When information about prices, trades, and depth is easily available, traders feel more confident participating, which in turn boosts liquidity. Fourth, technology and advanced trading platforms improve speed and accessibility, making it easier for investors to trade anytime with minimal delays.

Institutional investors, such as banks and funds, also add to liquidity by constantly providing buy and sell orders. Finally, strong regulation ensures trust and stability, encouraging participation from both local and foreign investors.

In short, a liquid market combines active participants, high volumes, transparency, technology, and trust, allowing trades to be executed smoothly and efficiently.

A market is considered liquid when traders can buy or sell an asset quickly without causing a big change in its price. High liquidity usually comes from a large number of active buyers and sellers, which keeps trading smooth and stable. Tight bid-ask spreads also signal strong liquidity because they show that participants agree closely on price. Heavy daily trading volume helps ensure orders are filled fast and at expected levels. The presence of market makers adds another layer of support by consistently offering to buy and sell. Clear information, stable regulations and low transaction costs also encourage participation. When all these factors are present, the market becomes easier to trade and less vulnerable to sudden price swings.