Liquidity

RECENT NEWS
The Economic Times  Mar 27  Comment 
Reserve Bank of India on Friday said that it would intervene to ensure smooth flow of inter-bank liquidity before the end of the fiscal.
MarketWatch  Mar 27  Comment 
Reduced liquidity is the hidden danger for investors that mindlessly indulge in the high-yield corporate bond temptation.
Reuters  Mar 27  Comment 
REUTERS - Indian shares are seen range-bound, with focus on oil prices due to rising tensions in the Middle East.
Clusterstock  Mar 26  Comment 
Howard Marks wants to talk about liquidity. Marks does not think liquidity is whether or not you can sell an asset; true l iquidity is how easily you can sell an asset — and at what price — when you're forced to.  In a note to investors...
MarketWatch  Mar 25  Comment 
The sovereign-bond market isn’t the only market facing a shortage of liquidity.
Financial Times  Mar 24  Comment 
Post-election Treasury panel urged to examine circumstances behind investigation
The Hindu Business Line  Mar 23  Comment 
Bank of Baroda joins other lenders with 10 bps reduction
The Australian  Mar 23  Comment 
ANZ chief Mike Smith says investors are wrongly assessing risk and the rampant “hunt for yield” could spark the next meltdown.




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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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