A liquid market is the market which possess a high level of stability and have low spreads between asking and selling prices. Assets can be converted easily without considerable price fluctuation in liquid market and there will be a minimal decline in worth. There is always a high trading volume in a liquid market because of large numbers of buyers and sellers who are ready and willing to trade at any time during market hours.

Liquid markets contain a large number of liquid assets. The asset which is sold quickly without losing value usually is considered to possess a high level of liquidity. This is a general role that as easily an asset is converted into cash, the more liquid the asset is. Money is most liquid type of asset that’s why Forex market is most liquid market. Stocks, government bonds, and blue chips are also usually considered liquid assets.

Liquid markets never contain illiquid assets. The asset is characterized as illiquid if it cannot be converted easily, or it possess uncertainty in value, or if it lacks a regular exchange market. Trading of illiquid asset is more difficult than a liquid asset. Real estate investments are called illiquid assets because they cannot be easily bought or sold. Another example of illiquid asset is a large block of stock, because its market value will most likely be impacted it were sold.

Thin market is opposite of liquid market. Thin markets can be unstable, and are characterized by few offers to buy and sell assets. So in result there is a substantial spread which exists between an asset’s asking price and any bids offered on the asset. Sudden changes in supply and demand in thin market often materially impact the value of an asset.

No market is automatically a liquid market; liquid markets are determined by their characteristics such as the markets that trade stocks, bonds, futures, and currency typically possess the characteristics of a liquid market. Speculators and market makers are always having influence the degree which keeps the markets liquid. When speculators and market makers buy and sell assets in order to profit from price fluctuations, they frequently supply the necessary capital for making market liquidity possible.

One of the most liquid and largest liquid markets is foreign exchange market. Different countries currencies are traded in foreign exchange market. Political uncertainty, inflation, interest rates and same other factors can effect the currency value. In foreign exchange markets those countries’ currencies are traded which are having stable economies.

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