Liquidity

Liquidity refers to the degree to which an asset or security can be quickly bought or sold in the market without affecting its price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

What Is Liquidity?

Liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value. Market liquidity refers to the extent to which a market, such as a country’s stock market or bond market, allows assets to be bought and sold at stable prices. Cash is the most liquid asset, while real estate, fine art, and collectibles are all relatively illiquid.

Understanding Liquidity

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. Cash is the most liquid of assets; tangible items, such as real estate, fine art, and collectibles, are all relatively illiquid.