Liquidity
How quickly an asset converts to cash without moving its price.
What is Liquidity?
A liquid asset has many buyers and sellers, tight spreads, and can be sold in size without a meaningful price concession. Illiquid assets - small caps, private funds, real estate - may require days or a price discount to exit.
Liquidity: a worked example
A mega-cap stock trades $2B a day. A microcap trading $50,000 a day cannot absorb a $500,000 sell order without dropping.
More terms in Positions & Trade Mechanics
Long Position
You own the asset and profit when its price rises.
Short Position (Short Selling)
You borrow shares, sell them, and profit if the price falls.
Margin
Borrowing from your broker to buy securities, using the account as collateral.
Cash Account
An account where every purchase is paid for in full, no borrowing.
Leverage
Using borrowed money to increase exposure relative to your own capital.
Initial Margin (Reg T)
The equity you must put up to open a margin position - generally 50%.
Maintenance Margin
The minimum equity percentage you must keep in a margin account.
Margin Call
A demand to add cash or securities after equity falls below maintenance.