Liquidity is a function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread and large orders will be absorbed easily by other participants. In an illiquid, or "thin" market, a large order cause a sudden price spike as several levels of bids/offers are absorbed. Most traders prefer to trade in liquidf makrets because they can be more certain of exiting at their desired price. The S&P 500 futures market is an example of a liquid market.