Why liquidity implies tight spread and low slippage
Consider the case where a stock has low volume.  If the stock normally has a few hundred shares trade each minute and you want to buy 10,000 shares then chances are you'll move the market by driving up the price to find enough sellers so that you can get all those shares.  Similarly, if you sell way more than the typical volume, this can be an issue. Theoretically, it's a question of rate of return. If a desired or acceptable rate of return for market makers' capital is X, and X is determined by the product of margin & turnover then higher turnover means lower margin for a constant X.  Margin, in the case of trading, is the bid/ask spread, and turnover, in the case of trading, is volume. Empirically, it has been noted in the last markets still offering such wide-varying evidence, equity options: http://faculty.baruch.cuny.edu/lwu/890/mayhew_jf2002.pdf You have just answered your question in the last sentence of your question:  More volume just means more people are interested in the stock...i.e supply and demand are matched well. If the stock is illiquid there is more chance of the spread and slippage being larger. Even if the spread is small to start with, once a trade has been transacted, if no new buyers and sellers enter the market near the last transacted price, then you could get a large spread occurring between the bid and ask prices. Here is an example, MDG has a 50 day moving average volume of only 1200 share traded per day (obviously it does not trade every day).  As you can see there is already an 86% spread from the bid price. If a new bid price is entered to match and take out the offer price at $0.039, then this spread would instantly increase to 614% from the bid price.
I think if you are only trading stocks with average volume greater than 1M you should not have any trouble entering a 10,000 size trade. If you are you can try a couple of things: Change your order from a market order to a limit order, however this may potentially reduce the number of shares that are actually traded on that day, and you may miss out on some or all of your order. Limit your trading to more liquid stocks, say average daily volumes above 10M or 100M. Apart from that you might have to just put up with some extra slippage and incorporate it into your trading plan. That is you can reduce your R multiple to allow some slippage. "He's misunderstanding Buffett's argument, which is that all forms of investment compete, and so when interest rates give you guaranteed low returns, it makes sense for stocks to give you average low returns.  That implies *high* prices for current stocks, because your return on equities is the price tomorrow over the price today.  Buffett would likely agree with him that this implies slow growth in the future, though he may not want to say so for competitive reasons.  Historical P/E norms are a more wrong metric, because they don't capture any fundamental change that might have happened in the economy.  What's likely going on is a surplus of capital: as business becomes more efficient (i.e. generates more revenue with fewer workers), that excess cash flow becomes investable capital, but as it becomes more efficient (i.e. less of that revenue filters down to workers in the form of wages that they can spend on consumer goods), the amount of productive uses where that capital can be effectively deployed in income-generating activities declines.  More capital + fewer investable opportunities = higher supply + lower demand = the price of securities for the few areas of the economy that *are* doing well increases.  This is why you see insane valuations for tech companies.  If we do get a major economic crash, it will likely come from a Carlota Perez-style financial crisis, where all the money gets concentrated within emerging new industries focused on new technology, who can't sell their products because nobody else has any money.  We're on the path to that already, but it will likely take a decade or two to play out; there's still a lot of money left in the ""old economy"" which can be extracted.  Also, these style of financial crises usually are accompanied by war and a breakdown of the established political order, and so all bets are off anyway." A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible. "Futures are an agreement to buy or sell something in the future.  The futures ""price"" is the price at which you agree to make the trade.  This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date.  Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates.  If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied ""fair value"" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open.  Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.)." While volume per trade is higher at the open and to a lesser extent at the close, the overall volume is actually lower, on average. Bid ask spreads are widest at the open and to a lesser extent at the close. Generally, bid ask spreads are inversely proportional to overall volumes. Why this is the case hasn't been sufficiently clearly answered by academia yet, but some theories are that The spread is two trades, one of which opens up some risk one of which limits/cancels the risk.  There is nothing stopping you from selling part of the spread opening the door to the risk.  You're required to have a margin account to open risky positions, even if the specific spread trade you're attempting to open has a risk limiting/cancelling counterpart. theoretically this concept makes sense.  However as recent numbers have shown ( I do not have the source handy but one can simply obtain this information via the ECB's website) banks have tapped this LTRO, something in the likes of 500 billion or so, and instead of buying Sovereign debt, they instead prefer to park this money with the ECB, paying something like 25 bps on deposits.  so instead of using this LTRO money to buy Sovereigns or perhaps lend to other banks, easing the strain on LIBOR, banks have just parked this money back with the ECB, as the ECB has seen its deposits once again reach record amounts (again, see the ECB website for proof).  Just this speaks volumes about the LTRO carry trade and how it is evidently not going to achieve its long term goal of bringing spreads down in Europe.  Perhaps in the short run yes, but if you look at the fundamentals (EURUSD, the EUR Basis Swap and the OIS-LIBOR Spread) they show how the situation in Europe is far from over, and the LTRO is nothing close to a long term and stable solution Many of the above comments are correct about illiquidity.  If someone needs to trade at a time of low liquidity, for instance when the markets are closed, the bid/ask spread can often be large to induce someone to trade at odd times.  Especially as the broker/bank on the other side of the trade can't immediately go to the market to close out the risk as they often prefer to do. In this case the jump is actually is large but not that large (~4%).  Note this trade price is near the close price on the day before. The system I use shows a trade that evening for 5 shares near the price on the graph.  If you called me after I was done with work and tried to buy 5 shares I'd quote you a bad price too.