What is Liquidity?

Liquidity refers to how easily something can be turned into cash. For example, money held in your bank (current) account can be turned into cash more easily than your car, which in turn can be turned into cash more easily than your house.

If you needed to get cash out of your current account, you could probably get it within a few minutes or hours; if you needed to sell your car, you could probably do that within a few days; if you needed to sell your house, it would probably take several weeks or even months before you had your hands on the cash.

Liquidity can also mean 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.

Go back to MyBookkeepingManager User Guides home page