3 min read · educational content, not investment advice
Liquidity is how easily you can trade without moving the price. It decides the real cost of everything else you do.
What illiquidity does
Widens the spread. You pay more to get in and get less to get out.
Worsens fills. Your market order gets filled somewhere worse than the price on screen.
Turns stops into suggestions. In a fast, thin market a stop can fill far below its level.
A quick read
Check average daily volume and the spread before anything else. If the typical spread is a meaningful fraction of your intended move, the trade is unlikely to work no matter how good the setup looks.
You cannot out-analyse a spread.
Practical rules
Trade the liquid end of your universe. Boring names are cheap; exciting ones are expensive.
Prefer limit orders where missing a fill is acceptable.
Assume your cost per trade is at the top of its range on anything unusual.