Liquidity and capitalization of stock on the stock market

Liquidity of stocks and capitalization of a company are two terms widely used on the market of securities.

Capitalization is the market value of a company. It is determined by multiplication of stock exchange stock cost by the amount of stocks in circulation. Capitalization of a company changes constantly during trades.

Liquidity is the index, determining the opportunity quickly and without the substantial prices’ fluctuation to make stock exchange transactions with a stock. The more transactions are concluded with a stock the higher volume of daily trades, the higher its liquidity. Liquidity is determined by the volume of trades and amount of the concluded transactions with a stock during a session. One of the ratio of stock liquidity is spread, that is the difference between quotations for a purchase and sale.

Liquidity of a stock is extremely important for the market of stocks, active trades pass only with narrow range of stocks. Small and rare transactions with many lowliguid stocks can strongly move their price.

With the liquidity index is closely related such index as free-float - the amount of stocks in free circulation. Free-float are stocks in circulation except for the state holding and holding belonging to companies’ managers - strategic investors. Low free-float means that lesser amount of stocks is available to the investors for making transactions, that interferes with liquidity growth. The small amount of free circulated stocks of companies poses a problem for investors who are interested in large stock exchange turnovers of liquid stocks.