Liquidity

RECENT NEWS
MarketWatch  8 hrs ago  Comment 
China faces increased downward pressure this year as domestic levels of debt continue to rise, the country’s central bank, the People’s Bank of China, has said.
Mondo Visione  May 28  Comment 
The OFR released a working paper today: Systemwide Commonalities in Market Liquidity identifies hidden liquidity regimes (high, medium and low) across a broad range of financial markets that can be used for characterizing periods of market...
The Economic Times  May 26  Comment 
"Today's proposals are crucial to our overarching aim to maximise liquidity and participation on the LME," LME Chief Executive Garry Jones said.
Financial Times  May 22  Comment 
Move will target thinly traded US stocks
MarketWatch  May 21  Comment 
The Federal Reserve is proposing to let big banks meet their liquidity requirements with investment-grade general obligation state and municipal bonds. Big banks currently cannot use such bonds to meet demands that they have a portion of...
MarketWatch  May 20  Comment 
Looking to cut risk for the U.S. mortgage market, federal officials finalized rules Wednesday for loan servicers, creating minimums for net worth, capital and liquidity.
Mondo Visione  May 20  Comment 
On 1 June Moscow Exchange will complete the migration from TO to T+1 settlement cycle for Russian federal government bonds known as OFZs. The Exchange will also introduce a liquidity support program for trading in the new settlement cycle. The...




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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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