What Is Liquidity?
Liquidity is how easily you can buy or sell something quickly without changing its price much. Cash is the most liquid asset; a house is not very liquid.
Liquidity in stocks
Big stocks like Apple trade millions of shares a day. You can buy or sell in a second at the going price. A tiny stock might trade only a few thousand shares a day, so selling a large amount could push the price down.
Signs of good liquidity
- High daily trading volume.
- A small bid-ask spread.
- Listing on a major stock exchange.
Company liquidity
Liquidity can also mean whether a company has enough cash to pay its bills. That is measured with the current ratio and working capital.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Bid-ask spreadThe gap between buying and selling prices.
Penny stocksVery cheap, very risky shares of tiny companies.
Current ratioCan the company pay its bills this year?
Market vs limit orderBuy now at any price, or only at your price.
Stock exchangeThe market where shares are bought and sold.
Working capitalShort-term money a company has to run day to day.