Liquidity, volatility and slippage
Why screen prices disappear when certainty matters most.
Liquidity is the ability to trade promptly with limited price impact. It is not constant. Volatility and liquidity often interact in uncomfortable ways during stress.
Depth and resilience
A liquid market has meaningful orders near the current price and can absorb trading without a large move. Resilience describes how quickly depth returns after orders consume it.
Volatility is not direction
Volatility measures the magnitude or dispersion of moves, not whether price rises or falls. Higher volatility increases uncertainty around execution and position risk.
Slippage
Slippage is the difference between an expected and actual fill. It can result from latency, gaps, limited depth or a large order. Realistic testing includes adverse execution rather than assuming every ideal price is available.
The lesson in three lines.
- 1Liquidity describes execution capacity, not popularity alone.
- 2Volatility measures movement, not direction.
- 3Backtests should include plausible slippage and costs.