Liquidity definition

In investment, liquidity is the ease of buying or selling a particular asset in the market without affecting its price. It can also refer to the facility of converting an asset to cash quickly and easily.

If an asset or group of assets are being heavily traded on the market, liquidity will generally be high as it will be much easier to find a buyer (or seller) for that asset.

That makes for a safer investment, as a trader can exit their position quickly without major impact on the asset’s price. A lack of liquidity can add risk to an investment position, known as liquidity risk. 

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