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Glossary
Markets
intermediate

Liquidity

How quickly and cheaply an asset can be converted to cash without affecting its price.

Also known as
market liquidity

Liquidity describes the ease of buying or selling an asset at a price close to its fair value. Cash is the most liquid asset; real estate and thinly traded stocks are comparatively illiquid.

High market liquidity typically means tight bid-ask spreads and stable prices; a liquidity crunch — when even normally liquid assets become hard to sell without a discount — can cause sharp, sudden price swings during periods of market stress.

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