- It is 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.
- It is also referred to as marketability, the ability to convert an asset to cash quickly.
- 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.
- Examples of assets that are easily converted into cash include blue chip and money market securities.