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Liquidity (Market Liquidity)

Liquidity pertains to how easy it is for an asset or a security to be converted in to cash without the market price being affected.

The term liquidity delineates up to what extent an asset may be bought or sold immediately within a market at a price that truly reflects its innate value. Among the many asset classifications, cash is held to be the most liquid as it can be converted into other assets with great ease. 

Assets fall into different levels within the spectrum of liquidity.  There are two types:

● Market Liquidity

This pertains to the degree to which a market, such as a country’s stock market or a city’s real estate market permits assets to be purchased and sold at stable prices.

● Accounting Liquidity

This measures how an individual or an institution would be able to meet its financial duties through the liquid assets that are within their grasp.

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