"Per the “Investors Dictionary,” liquidity is “the ability to quickly buy or sell a particular item without causing a significant movement in the price...
A high density of limit orders per price (i.e., a “full order book”) results in high liquidity for market orders. Per the definition of liquidity, a full order book should imply a small movement in the best price when a market order is placed. Liquidity is really a measure of market depth and continuity. Depth means the amount of shares available, while continuity implies orders are close together, not spaced far apart (sparse). Low liquidity can lead to large price movements when filling orders."
If I understood it right, it's always the nearest matching bunch of buy/sell orders that is being executed. Therefore I guess big fast moves in a liquid market are caused by a great amount of matching buy/sell orders that are just a few pips away from each other.
I'm sure there's an a easy answer to it but I somehow have difficulties thinking about it in a logical manner. Maybe you guys can help me out with that.