In simple terms, liquidity refers to how easily an asset can be bought or sold in the market without causing significant price changes.
🔁 High liquidity:
There are many buyers and sellers active in the market
Large trade volumes can be executed quickly
Spreads are usually tighter, as participants compete to offer the best prices
Price movements tend to be smoother and more stable
⚠️ Low liquidity:
Fewer participants are willing to trade
Spreads may widen
Prices can become more volatile, especially during off-hours or around major news events
Instruments like major currency pairs (e.g., EUR/USD) usually have high liquidity, while exotic pairs or certain commodities may have lower liquidity.