Liquidity

AAA

DEFINITION of 'Liquidity'

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

2. The ability to convert an asset to cash quickly. Also known as "marketability."

There is no specific liquidity formula; however, liquidity is often calculated by using liquidity ratios.

INVESTOPEDIA EXPLAINS 'Liquidity'

1. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment.

2. Examples of assets that are easily converted into cash include blue chip and money market securities.

For more, check Liquidity Measurement Ratios

VIDEO

RELATED TERMS
  1. Liquidity Crisis

    A negative financial situation characterized by a lack of cash ...
  2. Core Liquidity Provider

    An underwriter or a market maker that is a sizable holder of ...
  3. Core Liquidity

    Cash and other financial assets that banks possess that can easily ...
  4. Liquidity Ratios

    A class of financial metrics that is used to determine a company's ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable ...
  6. Illiquid

    The state of a security or other asset that cannot easily be ...
Related Articles
  1. What are the main risks of after-hours ...
    Active Trading Fundamentals

    What are the main risks of after-hours ...

  2. An Introduction To Capital Budgeting
    Personal Finance

    An Introduction To Capital Budgeting

  3. Understanding Financial Liquidity
    Options & Futures

    Understanding Financial Liquidity

  4. ETF Liquidity: Why It Matters
    Mutual Funds & ETFs

    ETF Liquidity: Why It Matters

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center