Liquidity
The ease with which a security can be bought or sold in size without materially moving its price.
How it is identified
Test: a normal order size executes near the prevailing quote, with a narrow bid-ask spread and depth on both sides of the book
Unit
qualitative
In depth
Liquidity has three components that are often collapsed into one: the spread (cost to trade immediately), depth (how much can trade at each price), and resilience (how quickly the book refills after a large order). A stock can look liquid on average daily volume and still be impossible to exit in a stressed market, because liquidity is not constant — it evaporates precisely when it is most wanted. This is the mechanism behind small-cap drawdowns being deeper than fundamentals suggest. The practical rule is that a position should be sized against the market's ability to absorb an exit, not against its ability to absorb an entry.
Worked example
A stock trades ₹2 crore a day with a spread of 0.15%. A ₹50 lakh position is a quarter of a day's turnover and probably exits over a day or two. A ₹5 crore position is two and a half days of the whole market and will move the price against you throughout.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Liquidity” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.