When we talk about “small” vs “big” differences in liquidity, we’re usually referring to the bid-ask spread and volume depth. Here’s how to interpret it:
📏 Bid-Ask Spread as a Liquidity Gauge
| Spread Size | What It Means | Example |
|---|---|---|
| Small (tight): 0.01%–0.1% of price | High liquidity, fast execution, low slippage | AAPL: Bid $175.00 / Ask $175.01 |
| Medium: 0.1%–0.5% of price | Moderate liquidity, manageable slippage | Mid-cap stock: Bid $22.00 / Ask $22.10 |
| Large (wide): 0.5%+ of price | Low liquidity, slow fills, high slippage risk | Micro-cap: Bid $1.00 / Ask $1.20 |
📊 Volume Depth Matters Too
- High liquidity: Thousands of shares/contracts at each level of the order book.
- Low liquidity: Sparse volume, often just a few hundred shares or less.
🧠 Real-World Impact
- In futures (like ES or NQ), spreads are often just 1 tick—super liquid.
- In options, spreads can vary wildly. A tight spread might be $0.05, while illiquid contracts can have $1+ spreads.
- In crypto, liquidity depends heavily on the exchange and token. BTC is tight; altcoins can be wild.
Since you’re trading live now, you can use this to:
- Avoid slippage by sticking to tight spreads.
- Time entries/exits when volume spikes.
- Scan for setups where liquidity confirms momentum.
