Glossary
Liquidity
Liquidity is how much can be traded near the current price without pushing that price around. A market is liquid when large orders fill close to where they are quoted, and thin when even a modest order moves the price. A great quote you cannot fill at size is not really a price.
It is tempting to judge a market by the number on the screen, but a price only means something if you can actually trade on it in the size you want. Liquidity is the missing dimension. It measures how much buying and selling a market can absorb before the price has to move to find the next willing counterparty.
Picture two contracts both quoted at 50 cents. On the first, thousands of contracts rest within a cent of that price, so an order for a few hundred barely nudges it. On the second, only a handful sit at 50 and the next offers are cents away, so the same order walks the price and fills at a worse average. Same headline number, very different reality. The first is deep, the second is thin.
Liquidity is why size changes everything. A tiny order can trade almost anywhere; a large one is constrained by what the order book can actually supply nearby. This is also why a tempting quote can be a mirage: if there is nothing behind it, you cannot fill at size, and the price is more of a suggestion than an offer.
Liquidity is not constant
The same market can be deep at busy times and thin when interest dries up. Judge liquidity at the moment you intend to trade, not from a snapshot taken hours earlier.