I’ve been getting into finance, stonks and crypto lately and I love researching and learning. But one word I’ve never fully understood is “liquidity”.
What is it?
Does it mean cash?
Does it mean a bunch of stocks?
Is it a noun, an adjective?
What does it mean to provide liquidity?
What does it mean to liquidate?
What does it mean to be solvent/insolvent?
I’ve looked on many different articles and sources and I still can’t find a way of thinking about it that makes sense in all uses of the word
In: 7
Liquidity is how easily something can be converted to cash. Obviously cash itself is most liquid, then things like stock that can be easily sold almost instantly. Shares in a private/pre-IPO company, real estate are some examples of less liquid assets because it’s harder to convert them to cash. It can also apply to a business’ ability to keep enough cash on hand to cover expenses. While businesses might have assets like machinery, inventory, real estate, patents, accounts receivable, if they don’t have money in the bank or credit lines they can tap into to pay vendors and make payroll, they’ll go under fast. Not being able to pay your bills and expenses is being insolvent.
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