Liquidity

Liquidity refers to the ability and ease with which assets can be converted into cash without affecting the current asset price in the market to a great extent.

Market liquidity refers to the extent to which a market allows assets such as stocks, bonds, or derivative products, to be bought and sold without paying a huge bid-ask spread. Cash is the most liquid asset, while real estate, collectibles are relatively illiquid. Mostly banks and financial institution provide liquidity in the market. Algorithmic trading also plays a big role in providing up to 70 % of liquidity seen in the markets. The bid-ask spread for liquid securities is generally very low.