Cash
The most liquid asset because you can immediately and easily transform it into other assets.
Stocks (especially traded on major exchanges)
Can be sold quickly and converted into cash, often within a single trading day. This makes them highly liquid.Â
Real estate (homes or land)
They are less liquid because the sales process can take weeks or even months. Significant transaction costs can be involved.Â
Collectables (art and antiques)
They are often illiquid because their value and demand can be subjective. Fining a buyer might take an extended period, especially if the collectable is unique or rare.Â
đź’ˇ Example
You want to buy $1,000 worth of Tesla stock. You don’t have $1,000 on hand, but you own a painting that’s worth that amount. To get $1,000 in cash, you’ll have to sell your painting. But you may have to sell it at a discount if you need cash right away or can’t find a buyer willing to pay your desired price. So, a painting isn’t a very liquid asset.
đź“„ Note
Via Trading 212, you can access real stocks and ETFs (Invest & Stocks ISA) and CFDs.Â
What is high market liquidity?Â
More buyers and sellers exist, so it’s easier to make a transaction. This means it’s more likely that you’ll be able to trade when you want. Higher liquidity is directly related to a smaller buy-sell spread since more market participants, buyers and sellers, are present.
What is low market liquidity?
Fewer buyers and sellers, so it’s harder to make a transaction. For example, you may not be able to sell your shares when you want. The fewer buyers and sellers, the larger the buy-sell spread.