Liquidity, Bid-Ask Spread, and Volume
Liquidity is the ability to trade size quickly without moving the price. It is not one number, and the common habit of judging it by volume alone is misleading.
Three measures, three questions
Spread answers: what does a small trade cost? The tightest possible cost of a round trip.
Depth answers: what does a large trade cost? Size available at and near the touch.
Volume answers: how much trades overall? Usually quoted as average daily volume (ADV).
These can disagree. A stock can have high volume concentrated in a few bursts while being untradeable in between. Another can have modest volume that is steady and deep all day. For someone with size to execute, the second is more liquid in the way that matters.
Volume is the most quoted liquidity measure and the least directly useful. Depth at the price you need to trade is what determines your cost.
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