What is Liquidity?

Liquidity refers to how easily something can be bought or sold. It refers to how easily something can flow from one person to the next. For instance, if you were to sell a share of Capitec, you would be able to sell it in about 5 minutes if you price the share within 1% of the present selling price. This means that the share has a high liquidity.

However, if you had to sell a blanket that your grandmother gave you, it might take some time, and you would probably have to sell it for a low price. This is because it is difficult to sell and is therefore illiquid.

When we apply this concept only to shares, it means that a share with a high liquidity will have a large supply and demand. This in turn will reduce the spread, ensuring that you get a market related price for your share.