What is liquidity in investing?

Liquidity: How quickly you can sell something without the price moving. A big listed stock is liquid, a house is not.

Something is liquid if you can sell it quickly at a fair price. Shares of big companies are very liquid, there are always buyers. A house is not liquid, selling it often takes months.

With thinly traded investments there is sometimes nobody ready to buy straight away. You then have to wait or accept a lower price.

Liquidity matters most when you need your money fast. In a market panic, something that is normally liquid can suddenly be harder to sell.

Example
You want to sell 5,000 euros of shares in a big company. That takes a few seconds at about the market price. With a small, thinly traded share you may have to go 3 percent lower. That costs you 150 euros.

Watch out
Low liquidity often comes with a wide spread. Money needed in the short term is therefore often kept in a savings account rather than in an investment.

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