Market Liquidity
From Financial Literacy Wiki
Market liquidity is a investment term that references an asset's ability to quickly be liquidated or converted through an action of buying or selling into cash, preferably without causing a significant movement in the price and with minimum loss of value.
A liquid asset has some or more of the following features. It can be sold
- rapidly,
- with minimum loss of value,
- anytime.
The essential characteristic of a liquid market is that there are ready and willing buyers and sellers at all times. A market may be considered deeply liquid if there are ready and willing buyers and sellers in large quantities.
The liquidity of a product can be measured as to how often it is bought and sold and its quantity traded which is known as volume. Investments in liquid markets such as the stock exchange or futures markets are considered to be more liquid than investments such as real estate, based on their ability to be converted to cash.
Usually speculators and market makers are key contributors to the liquidity of a market, or assets. Speculators and market makers are individuals or institutions that seek to profit from anticipated increases or decreases in a particular market prices. By doing this, they provide the capital needed to facilitate the liquidity. So you can see from here is that during bull market run there is high liquidity because speculators are out in force to buy in and later sell it at a higher price and during bear market run there is low liquidity.
