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
The “liquidity” of something is how rapidly you can turn that valuable object into cash to be used for whatever. Obviously if you want to buy a house you can’t just trade your exotic car for it. You need to sell the car and turn it into cash which you can use to buy the house. Some things are easier or harder to turn into cash. How easy or hard it is makes it more or less “liquid”.
Likewise a “liquidation sale” is when you sell everything you own to turn it all into cash to pay your debts.
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