Liquidity refers to the efficiency or ease with which an <\/strong>asset<\/a> or security can be converted into cash<\/strong> without affecting the market price. In other words, liquidity is how quickly an asset can be bought or sold at its real price<\/strong>. It requires a market to sell and buy. In other words, it requires supply<\/a> and demand<\/a>.<\/a> The more in demand a product is, the faster it can usually be sold. For example, if you have a very valuable heirloom at home that you would like to sell, you need a potential buyer. If there are many interested parties, you can sell the heirloom very quickly at the real price. For example, if you have a very rare stamp collection, it would be easier to sell than a stamp collection with less rare stamps. You may have to sell your heirloom for a lower price to find a buyer with the right willingness to pay, as your heirloom is illiquid. <\/p>\n\n The most liquid asset of all is cash itself, while tangible assets, such as real estate<\/a>, are relatively illiquid. The two main types of liquidity are market liquidity and accounting liquidity<\/strong>. <\/p>\n\n Market liquidity<\/strong> describes the extent to which a market enables the sale and purchase of assets<\/a> at transparent prices. The stock market, for example, is considered to be relatively liquid<\/strong>. Exchange-traded<\/a> shares<\/a> are one of the most liquid investments, but there are differences here too. Not all shares are equally liquid<\/strong>. For some shares there is a larger market, so they are also traded more actively on the stock exchanges. This means that the demand<\/a> for these shares is greater. Liquid shares can usually be recognized by a large daily trading volume. Normally, the price that the buyer is prepared to pay (bid price) is relatively close to the price that a seller is demanding (ask price). This leads to a market equilibrium and ultimately to the conclusion of the transaction. If markets are relatively illiquid, it is possible that sellers will have to sell their assets at a discount in order to conclude the transaction more quickly, as the search for a suitable buyer with a suitable willingness to pay may take too long. <\/p>\n\n Accounting liquidity<\/strong>, on the other hand, measures a company’s ability to pay short-term debts as they fall due with the available current assets<\/strong>. Accounting liquidity is therefore one of many indicators that provide information about the financial health of a company. See also the detailed article on liquidity ratio 1, 2 and 3<\/a>. <\/p>\n","protected":false},"template":"","class_list":["post-4173","lexikon","type-lexikon","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/lexikon\/4173","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/lexikon"}],"about":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/types\/lexikon"}],"wp:attachment":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/media?parent=4173"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Market Liquidity and Accounting Liquidity<\/h2>\n\n