What is liquidity?

The liquidity of an asset indicates how quickly it can be sold or bought in the market. In other words, it tells us how easy it would be to convert the asset or security into cash. Cash is considered as the standard of liquidity since it can easily and quickly be converted into other assets like real estate, collectibles, etc.

Points to remember

  • Liquidity helps inform you if there is a market in place for the asset in question. 
  • Stocks and bonds are considered liquid assets too since they are very easy to convert into cash.