Liquidity

The Liquidity term refers to the easy with which an asset can be converted into cash. The liquidity of a certain company’s stock is a measure of the ability of the market to absorb buying and selling of this stock without serious effect on the stock price. When we say that a stock is liquid, this means that a relatively large blocks of this stock can be bought or sold in short period of time, without substantially affecting the price of the stock. Examples of liquid stocks are blue-chip stocks like Microsoft or GE.

Illiquid stock is a stock with low volume, which price can be affected by relatively small trades. A classic example of illiquid asset is real estate.