Short definition: Liquidity refers to the ease with which an asset can be converted into cash without significantly impacting its market price.
Explanation: It is a measure of how quickly an asset can be bought or sold in the market without causing a drastic change in its price. Cash is the most liquid asset, while real estate or collectibles are considered less liquid due to the time and effort required to convert them into cash.
Example: A publicly traded stock with a high trading volume is considered liquid, as it can be easily bought or sold without significantly affecting its price. On the other hand, a piece of art may be illiquid, as it may take time and effort to find a buyer willing to pay its fair market value.
Additional information (optional): Liquidity is an important factor for investors as it affects their ability to buy or sell assets when needed. Companies also need liquidity to meet their short-term financial obligations.
Meta description for the website (Glossary entry “Liquidity”):
Learn about liquidity and its importance in finance and investing. Understand how liquidity is measured and how it affects the ability to buy or sell assets without impacting their market price.