Liquidity is a concept used to measure the ease of converting a financial product into cash.
What is liquidity?
One of the most used terms in the financial sector is liquidity. Liquidity is also a very important concept for the Cryptocurrency market. It is one of the concepts that should be known especially by those who want to enter the crypto money ecosystem. Liquidity means that a financial product, security or real estate can be converted into cash at any time and that it does not encounter a lack of demand while it is being converted, and that it finds buyers easily. Liquidity is related to the magnitude of the change between the rate of sale and the price at which it can be sold.
Liquid is all assets that have the potential to be converted into cash. Liquid product is the name given to the values that can be converted into cash without losing much of their value and that can easily find buyers. All cryptocurrencies are liquid assets. When prices are low, investors are offered various tools to reinvest and can be quickly bought and sold through brokerage firms.
All assets that can be converted into cash are considered liquidity, and whether the source belongs to a natural or legal person does not affect its liquidity. For example, real estate such as a private house, car, or stocks of any company are considered liquid products.
Liquidity can also be calculated in a different way in companies with legal entities. The remaining cash level after a legal entity covers all its debt also determines the liquidity status of that company. In addition, it can be said that the faster and easier the liquidation of the resource put up for sale by the enterprise, the more liquid the resource is.
What are the Liquidity Features?
Liquidity means that the value of the asset to be traded can be converted into cash without undergoing a major change. The prominent features of liquidity, which are among the first issues that are on the agenda of those who want to step into the world of crypto money or those who own any securities:
- Liquidity is related to the speed of product sales. It is possible to sell quickly in a market that is considered liquid, and it does not reduce the selling price of this product. However, in an illiquid market, the price of the product decreases when fast sales are made.
- When the value of the assets increases, the asset must be in liquid condition in order to be converted into cash and profit. For illiquid assets, the liquidation process fails.
- The most used medium of exchange in daily life is fiat money. Abundant use of money does not necessarily require conversion during purchases. For this reason, the liquidity of money is always considered high.
- Checks, government bonds, corporate bonds, stocks, consumer durables and real estate are other liquidity assets.
