Finance Dictionary
Liquidity
Definition
The efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
Deep Dive
Liquidity refers to the ease and speed with which an asset or security can be converted into ready cash without significantly impacting its market price. Highly liquid assets, such as cash or publicly traded stocks of large companies, can be sold quickly at or very near their last traded price, making them ideal for meeting immediate financial obligations. Conversely, illiquid assets, like real estate, fine art, or private company shares, may take considerable time to sell and often require significant price concessions to attract a buyer quickly.
Examples & Use Cases
- 1Cash in a savings account is highly liquid, accessible instantly
- 2Shares of a large, frequently traded company on a major stock exchange are considered liquid assets
- 3A large commercial property is an illiquid asset, as selling it quickly without a significant price discount can be challenging
Related Terms
Market EfficiencySolvencyWorking Capital