Liquidity

The availability of liquid assets to a tradeable entity or market. The more easily an asset can be converted into cash and the more potential people the asset can be traded to, the more liquid it is considered. For example, equity market stocks are considered relatively liquid assets because they can generally be easily converted to cash relatively quickly. Some generally considered illiquid markets are real estate and private equity (privately-traded companies). An asset’s liquidity affects its risk potential and market price, because the less liquidity an asset has, the less buyers or sellers there may be, therefore reducing options and demand.