In finance, the term 'liquid' refers to how quickly you turn an investment into cash (i.e. liquidate it).
💡 Note: With shares, liquidity is used to describe how easily, and how often, they trade hands
For example, a house is relatively illiquid because it takes time and effort to buy and sell, whereas shares on the share markets are considered liquid because when the share markets are open, you can usually buy and sell them in real time (see our listing criteria to find out how we ensure this).
The US share markets are considered the most liquid in the world because of their size and the volume of shares traded. For example, on 9 Jan 2020 around 28 million Telsa shares changed hands, compare that with the 100,000 or so Air New Zealand shares that were bought and sold over the same period.
Why does liquidity matter?
When a share has low liquidity, it's at higher-risk for price manipulation (someone can come in and place large orders in rapid succession to inflate the price and then sell off everything - this article explains how that can play out). This type of behaviour is sometimes seen with penny stocks, which is one of the reasons why you won't see many share prices lower than $1 USD on the US share markets.