Liquidity

RECENT NEWS
Yahoo  Aug 18  Comment 
Excessive price moves and reversals in a span of minutes, also known as "flash" events, have hurt liquidity in the stock, bond and currency markets for days, according to a New York Federal Reserve blog released on Tuesday. Fed analysts Ernst...
MarketWatch  Aug 17  Comment 
The first in a new series of research articles from the New York Fed concludes that, far from being troublesome, liquidity in the government bond market is actually pretty decent.
The Economic Times  Aug 16  Comment 
“Tax collections and RBI dividend giving the government additional funds are likely to add to liquidity in the system,” said Badrish Kulhalli.
The Economic Times  Aug 7  Comment 
Promoters of almost 790 compa nies have pledged their shares with lenders. Out of this, nearly 100 firms reduced their pledges during the June quarter.
The Economic Times  Aug 4  Comment 
The Reserve Bank of India has for the first time acknowledged that easy liquidity conditions might be necessary for rate reduction to be passed on to consumers.
Benzinga  Aug 4  Comment 
The concern over liquidity seems fairly universal. Analysts and pundits have been sporadically warning about illiquid global markets from the United States to Kenya. The concerns have only escalated as commodity prices have dipped and...




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Liquidity

Liquidity is defined as the ability to trade large size quickly at a low cost. It is one of the most important characteristics of a market. A liquid market allows traders to implement their strategies cheaply, normally with a limited bid/ask spread. A liquid market is characterized by high volume. It is generally less volatile than an illiquid market.

Usually, you can refer to three dimensions of liquidity - time, size and cost:

• “Immediacy” refers to how quickly you can execute a trade of a given size at a given cost.

• Width refers to the cost of executing a trade of a given size, including commissions.

• Depth refers to the size of a trade that can be executed at a given cost. Width and depth are very strictly related.

A liquid market is a market where you can trade large size quickly at low cost. Liquidity refers to how quickly you can convert your assets into cash. [1] Liquidation is the conversion of assets into cash by an Investor getting rid of a position in a particular type of security. [2]

For example, a portfolio manager might decide to liquidate a position in a stock by selling all the shares of that stock held in the portfolio. [3]

1610s, from liquidus. [1] Liquid Financial sense of "capable of being converted to cash" is first recorded 1818. [2]

References

  1. Stock Investing for Dummies‬ By Paul Mladjenovic pg22 ISBN-10: 0470401141
  2. Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott Accounting Professor ISBN-10: 0618176519 pg 212
  3. Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. ISBN-10: 0618176519 pg212

4. http://www.bestcashloans.org.uk/

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