Liquidity is the ability of a given asset to be exchanged as quickly as possible and converted into cash at its market price.

Formula for the liquidity of an asset:

Liquidity = time to sell / market price

Examples:
Cash – this is the most liquid asset because it can be used immediately.

Bank deposit – also liquid, as long as there are no withdrawal restrictions.

Real estate – not liquid because selling it takes time and may not bring the expected value immediately.

Stocks – usually liquid if they are traded in an active market.

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