Published 2026-10-14
Liquidity
Liquidity is how easily a position can be traded without moving the price. It is the hidden constraint behind slippage, capacity, and why a backtest that worked at small size may fail at large.
On this page
What it is
Liquidity is how easily a position can be traded without moving the price.
A liquid market absorbs size. An illiquid one does not — and the moment you need to trade is often the moment liquidity is thinnest.
Where it shows up
| Symptom | Liquidity is the cause |
|---|---|
| High slippage | The order moved the price |
| Capital capacity limit | The position itself is the market impact |
| Fills that vanish in stress | Liquidity disappears exactly when everyone needs it |
Liquidity is a cost that is invisible until you try to trade against it. (See slippage and capital capacity.)
How to check
Ask what liquidity assumption the backtest made — and whether it varied with market conditions. A backtest that assumes constant liquidity has assumed away the hardest part.