This module is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 6 of 8 · 12 min
Measuring liquidity: float, average daily volume and turnover
A share's liquidity is judged by its trading costs, by how much of its tradable float changes hands each day, and by the depth, breadth and resiliency of its order book.
In short
- Market float = shares outstanding − restricted shares (or shares otherwise not available to trade).
- Average daily volume (ADV) = average shares traded per business day over a chosen period.
- Turnover ratio = ADV / market float: the share of the tradable shares that change hands on a typical day.
- Comparing a position with ADV (and any cap on the share of ADV a fund may trade) tells you how many days an exit takes.
- Depth: size of orders at or near the best bid and ask. Breadth: number of orders at price levels near them. Resiliency: how quickly price returns to a market-clearing level after a shock.
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