Liquidity

Liquidity refers to financial availability on two levels: the «liquid» tradability of an investment and the solvency of an economic actor. Liquidity thus describes an asset’s ability to be converted into cash easily and quickly without significant loss of value. High market liquidity is important for investors because it ensures that securities can be bought and sold smoothly on exchanges at any time without causing sharp price fluctuations.

Cash is considered the most liquid form of investment. In direct contrast, real estate or works of art are illiquid, as their sale often takes a long time.

Second, liquidity describes a company’s ability to meet its payment obligations on time at any given moment. A lack of liquidity can lead to insolvency despite high total assets.