On the stock market, liquidity is like oxygen — you only notice it when it’s absent. While Jamaica’s capital markets have made impressive strides, and the Jamaica Stock Exchange (JSE) is often ranked as the most liquid in the Caribbean, it remains relatively illiquid compared to major global exchanges. On international markets like the New York Stock Exchange, NASDAQ or the London Stock Exchange, billions of trades occur daily. In contrast, our local market experiences far fewer transactions, averaging only 38.1 million trades per day in 2024. This low level of trading volume limits how quickly investors can buy or sell shares without affecting prices. This dynamic can make it harder for investors to trade with confidence, especially during times of uncertainty. But what exactly does market liquidity mean, and what does it mean for you as an investor? Let’s explore what happens when liquidity is low, and how you can make smart decisions to mitigate some of the challenges of an illiquid market.

What Is Illiquidity, and Why Does It Matter?

Liquidity refers to how easily you can buy or sell shares on the stock market. In highly liquid markets, there are lots of buyers and sellers, so it’s easier for everyone to make a trade quickly and at a fair price. You’re not stuck in a queue for days waiting for someone to match your order. Prices also tend to move in line with actual changes in the company’s performance or broader economic or market news. In an illiquid market, however, not many people are trading. This means you might place a buy or sell order, and it doesn’t go through right away — sometimes not for days. Prices can swing sharply just because a few people or even one person traded a few stocks, rather than because the fundamentals of the company have changed. That can make it harder to trade a stock for what it is really worth.

For example, during the early days of the COVID-19 pandemic in March 2020, even large global markets experienced temporary liquidity problems. Investors rushed to sell shares for cash, but there weren’t enough buyers willing to pay at the same prices. As a result, the gap between what sellers wanted and what buyers offered became unusually wide. It became more expensive and difficult to trade, even in normally active markets like the US and the UK. That period reminded us that when liquidity disappears, prices can behave unpredictably.

How Illiquidity Affects Jamaica’s Stock Market

In smaller economies like Jamaica, the stock market is often less liquid. On average, only 38.1 million trades occurred per day on the JSE in 2024 (compared to 2.0 billion on NASDAQ), and many listed companies go days without a single trade of their stocks occurring. Similarly, share turnover, a measure of liquidity that normalises for differences in size between markets – by dividing the value of stocks traded in a year by the total value of companies on the market – was 5.9 per cent on the JSE, 264.2 per cent for NASDAQ and 182.4 per cent for the NYSE. This means that, even when accounting for sizes, Jamaica’s market is more illiquid than US markets. As a result, prices can fluctuate sharply based on just one or two transactions.

For the everyday investor, this means you might place a trade – for a smaller company, an SME, or a stock that isn’t widely held – and have to wait days for it to go through. You may also notice wild price swings that don’t reflect anything changing with the company itself. Recognising this helps investors avoid knee-jerk reactions and maintain a focus on long-term value.

How Investors Can Make the Most of Illiquid Markets

While low market liquidity presents challenges, there are still practical ways that investors can manage risk and uncover opportunities, especially with guidance from trusted brokers like NCB Capital Markets Limited (NCBCM).

Diversify with Liquidity in Mind: Try to reduce risk by holding shares in companies with higher average trading volumes. These are often larger, more established firms that offer quicker exits in the event of emergencies. At the same time, if you believe in the long-term potential of a smaller or less liquid company, it may still deserve a place in your portfolio. Just be aware that it may take longer to sell those shares and realise gains when the time comes.

Focus on Fundamentals: In an illiquid market, short-term price movements are more often driven by how many people are trying to buy or sell rather than changes in the company’s fundamentals. Instead of reacting to price movements, which may be down to low trading activity, focus on companies with strong earnings, good governance, and a sound growth strategy. These fundamentals matter more in the long run and help maintain conviction even when prices fluctuate due to low liquidity.

Use Limit Orders: Instead of buying or selling at the prevailing market price, which can fluctuate wildly in thinly traded stocks, use limit orders. Limit orders allow you to set the price you’re willing to pay (or accept if selling), helping you avoid unfavourable trades.

Be Patient and Think Long-Term: Investors who stayed the course during the 2008 global financial crisis or the pandemic downturn saw meaningful gains as markets recovered. Illiquid markets tend to reward patience. If you’re confident in the company’s future, be prepared to hold through periods of inactivity or significant price fluctuations.

Stay Informed and Supported: Review your portfolio periodically with your wealth advisor. Additionally, brokers like NCBCM offer clients access to investing platforms, research and insights, including the weekly Market Guide uploaded on our website and “Invest Like an Owner” webinars available on the NCB Jamaica
YouTube channel. These resources can help you navigate volatility and stay aligned with your long-term goals.

The Way Forward

It is still possible to be a successful investor in a less liquid market. It simply means you have to plan ahead, stay patient, and make smart choices. By understanding how illiquidity impacts trading and using tools like diversification, limit orders, and doing your research before you invest, you can still grow your wealth over time. At NCB Capital Markets Limited, we are committed to supporting you on your wealth creation journey with trusted wealth advisors, research and analyses and educational content to help you make informed decisions.

If you would like to explore how to align your investments with market realities and long-term goals, speak with an advisor today. Email us at ncbcapinfo@jncb.com or call 876-960-7108.

This article provides general information only, not financial advice. Consider your personal situation and consult a licensed advisor before making decisions. Past performance does not guarantee future results.

Dr Karrian Hepburn Malcolm, Head — Wealth Management, National Commercial Bank Jamaica LimitedStudioCraft