Originally Posted by AMITBE
Hi tradebull...
Liquidity in trading terms implies the amount of activity in a scrip.
Liquidity, broadly, is the existence of a sufficiently large number of buyers and sellers in a scrip to permit one to quickly and easily acquire or exit a position in a scrip.
Liquidity is based on certain factors, the important ones being:
Volume of transactions in the scrip. Higher the better mostly.
Number of shares outstanding. More the better.
Breadth of ownership, meaning the higher the number of holders of the scrip the better.
Volume too is a component of liquidity. A good trading stock should trade at least 5 lakh shares or more. Stocks with high volumes allow traders to acquire or sell a large quantity of the scrip without unduly affecting its price.
There is a direct relation between liquidity and volatility.
Typically a strongly liquid scrip will attract a large number of traders who are looking for volatility, meaning the price action would fluctuate enough for quick entry and exit.
On the other hand, an illiquid scrip would not to be attractive to most traders, particularly day traders as volatility is not too great in such scrips.
Universal Cables is not particularly a liquid scrip, and for that reason is not too volatile. The fact that there was a sharp rise in volume along with a slight dip in price, is a matter of interest and concern.
I'll come back on Sunday with my take on KEI.
Regards
