What Is the Relationship between Trading Volume and Liquidity?

Trading volume and liquidity are closely related concepts in financial markets. Trading volume refers to the total number of shares or contracts traded for a specific security over a given period.

Liquidity, on the other hand, refers to the ease with which an asset can be bought or sold without affecting its price. Generally, higher trading volume is associated with higher liquidity, as it indicates a greater number of buyers and sellers in the market.

This makes it easier for traders to execute their orders quickly and at a fair price. However, it is possible for an asset to have high trading volume but low liquidity if a few large players dominate the market.