Definition of Liquidity
What does the term "liquidity" mean? What is meant by the term "liquidity"?
The term "liquidity" refers to the ease in which an asset can be sold.
Are there many buyers and sellers in the market for a certain asset? Are there a large number of purchases executed on a daily basis? Both of these questions determine the "liquidity" of an asset.
Let's say that you own an ounce of gold. This would be a very liquid asset, as you will have absolutely no troubles finding a willing buyer almost immediately. The market for gold is massive.
Let's say that you own a rare antique dresser. While this item could certainly be sold, you will likely need more time in order to sell it. For instance, you will need to determine a fair value, find a seller, etc. This asset would be much more illiquid than an ounce of gold.
Examples of very liquid assets: bonds, gold, shares of Microsoft.
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