Liquidity across asset classes: stocks, forex, crypto and bonds
Compare how stocks, forex, crypto and bonds are traded, measure their liquidity in basis points, and estimate the round-trip cost of the same position in each market.
What you will learn
- How the market structure of stocks, forex, crypto and bonds shapes their liquidity
- How to express a spread in basis points so that different markets become comparable
- Why quoted size and depth matter as much as the spread
- How to estimate the round-trip cost of a €10,000 position in four markets
Explanation
Liquidity is the ability to buy or sell a meaningful amount quickly, at a price close to the current market price. It has three parts: tightness (how small the spread is), depth (how much volume waits near the best prices) and resilience (how fast the book refills after a large trade). Order books and spreads were introduced earlier in this course; here we compare markets.
Measuring the spread in basis points
A basis point (bp) is one hundredth of a percent: 0.01%. To compare a €20 share with a currency pair at 1.1000, convert the spread into basis points of the mid price (the average of bid and ask):
Spread in bp = (ask − bid) ÷ mid × 10,000
Crossing the full spread once (buying at the ask and later selling at the bid) costs about one spread. So the round-trip spread cost ≈ position value × spread in % (before fees).
Stocks
Shares trade on exchanges and other venues with central order books. Large companies in major indices usually have narrow spreads and deep books during main hours. Small companies can have spreads of 0.5% or more and only a few hundred shares at the best price. Liquidity is concentrated in the main session and auctions.
Forex
The foreign-exchange market is OTC (over the counter): there is no single central exchange. Large banks and electronic dealers quote prices to each other, and retail brokers pass on prices from these liquidity providers. According to the 2025 Triennial Survey of the BIS (Bank for International Settlements), global FX turnover averaged about $9.6 trillion per day in April 2025. Major pairs such as EUR/USD are extremely liquid on weekdays, but liquidity thins around the daily rollover and during holidays, and the "depth" you see at a retail broker is only that broker's offer. Forex sessions were covered in the forex course.
Crypto
Crypto-assets trade 24 hours a day, 7 days a week, on many separate exchanges. Liquidity is fragmented: the same coin has different order books, prices and depth on each platform. Major coins can show narrow spreads, but small tokens often have thin books, and weekend or night hours can be shallow. Trading fees (often 0.1% or more per side for retail) can cost more than the spread.
Bonds
Most bond trading is OTC between dealers. Many bonds trade rarely, so prices are often quotes rather than recent trades. Professionals use RFQ (request for quote) systems, where several dealers are asked for a price. Retail investors see market-maker quotes on exchanges or in direct trading. Large government bonds are liquid; small corporate bonds can have wide spreads and small quoted sizes.
Depth versus your order
A narrow spread is only useful if your order fits into the volume at the best price. Rule of thumb: if your order is larger than the size shown at the best bid or ask, expect to pay more than the quoted spread, as you saw in the lesson on slippage.
Worked example
Hypothetical example: You compare the round-trip spread cost of a €10,000 position. All values are hypothetical, typical-looking numbers, not current market data.
| Market | Assumed spread | Spread cost | Other trading fees | Total |
|---|---|---|---|---|
| Large-cap share | 0.05% (5 bp) | €10,000 × 0.05% = €5.00 | not included | €5.00 |
| Small-cap share | 0.60% (60 bp) | €10,000 × 0.60% = €60.00 | not included | €60.00 |
| EUR/USD | 1 pip at 1.1000 | 0.0001 ÷ 1.1000 = 0.91 bp → €0.91 | not included | €0.91 |
| Major crypto-asset | 0.02% (2 bp) | €2.00 | 0.10% per side × 2 = €20.00 | €22.00 |
| Corporate bond | 0.50% (50 bp) | €50.00 | not included | €50.00 |
Steps: (1) express each spread in percent of the mid price; (2) multiply by the position value; (3) add per-side fees where they are part of the comparison. The results differ by a factor of more than 60. Excluded: broker order fees for shares and bonds, overnight financing, taxes, and slippage for orders larger than the quoted size.
Common mistake
Practice activity
Calculate the spread in basis points and rank the instruments from most to least liquid by spread: (a) share: bid €19.96, ask €20.04; (b) bond: bid 97.80, ask 98.40 (percent of nominal); (c) crypto-asset: bid $1,999.50, ask $2,000.50.
Show solution
(a) Spread €0.08, mid €20.00: 0.08 ÷ 20.00 × 10,000 = 40 bp.
(b) Spread 0.60, mid 98.10: 0.60 ÷ 98.10 × 10,000 ≈ 61.2 bp.
(c) Spread $1.00, mid $2,000.00: 1 ÷ 2,000 × 10,000 = 5 bp.
Ranking by spread: crypto-asset (5 bp), share (40 bp), bond (61.2 bp). The crypto trade can still be more expensive after exchange fees.
Limitations: the spread measures only tightness; check depth and fees before concluding which market is cheaper for your order size.
Key takeaways
- Liquidity has three parts: tightness, depth and resilience.
- Convert spreads into basis points of the mid price to compare markets fairly.
- Forex and bonds are mainly OTC, crypto is fragmented and 24/7, stocks are concentrated on venues during main hours.
- Add fees and check depth: the market with the narrowest spread is not always the cheapest to trade.
Next step
In the next lesson you will see what happens when liquidity suddenly disappears: flash crashes and liquidity gaps.
Self-check
Answer the questions, then check your answers. You can retry as often as you like.
Automatic self-check for your own revision. Your answers are checked in your browser and are not seen or assessed by us. It is not an exam and not a qualification.
Your progress
“Complete” only means you marked the lesson as done. It is not a test of your understanding. Progress and notes are saved only in this browser on this device — not in an account.