Understanding Liquidity
The concept of liquidity has many facades to it. One way to define liquidity is “the ability of an asset to be converted into cash readily on demand”. An additional way of viewing at it is when any asset can be bought or sold at its fair price. Liquidity thus means that there aren’t discounts or bonuses devoted to it during buy or sell and it’s easy to enter and exit the asset. It is believed as more of an item is accepted and sold, the chances of charging premiums or giving discounts lower and such an asset usually trades around ‘what it is worth’. The forex market is often defined as a liquid market with an average turnover of more than $5 trillion daily as of April 2016 according to the Bank for International Settlements (BIS) while real estate is a classic example of an illiquid asset. Property as an asset is less liquid, requiring huge investments into physical form, monotonous procedures and smaller market. Liqu...