Liquidity

Liquidity is how easily an asset can be bought or sold at a price close to its last traded price, without the act of trading itself moving that price. A stock trading millions of shares a day with a penny-wide bid-ask spread is liquid; a thinly traded small cap where a single order can move the price 5% is not.

Liquidity matters most exactly when you need it least to matter: during a rush to sell. Illiquid positions can be nearly impossible to exit at a fair price in a panic, which is why professional risk management treats liquidity as its own risk factor, separate from volatility.