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Liquidity Definition:

A measure of liquidity is the ease with which an asset or security can be changed into cash at a price that corresponds to its true worth.

Since it may be used immediately and doesn't need to be converted, ready cash is regarded as the asset with the highest level of liquidity.

Real estate, collectibles, fine art, and other tangible assets are examples of relatively illiquid assets since it can take some time to locate a buyer at the right price and complete the deal.

Stocks and other financial assets that are traded openly fall somewhere in the middle of the liquidity spectrum.

Trade Liquidity:

Market liquidity refers to liquidity within an entire market, such as the stock market or real estate market.

If a market has high market liquidity, then commodities in that market can be bought and sold at relatively stable, transparent prices. The stock market, for instance, is characterized by high liquidity, at least when trade volume is high and not dominated by selling.

Accounting Liquidity:

Accounting liquidity describes a person's or a business's capacity to pay down short-term debts out of available assets. Accounting liquidity is high for people and businesses with a lot of extra cash on hand or easily tradable assets like stocks. On the other hand, a person or company whose cash is invested in tangible assets may be less liquid.