Liquidity Law and Legal Definition

Liquidity refers to the quality or state of being readily convertible to cash. The easier to convert an asset, the greater is its liquidity. Money is the most liquid asset. With regard to securities it refers to the characteristic of having enough units in the market that large transactions can occur without substantial price variations. An investment that is highly liquid is composed of units such as shares in which many transactions takes place without affecting the market price much. High liquidity is associated with a high number of buyers and sellers trading investments at a high volume.