Business and Personal Finance Dictionary

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• LIQUIDITY
  
  If you can convert an investment easily and quickly to cash, with little or no loss of value, you have liquidity. For example, you can typically redeem shares in a money market mutual fund at $1 a share. Similarly, you can cash in a certificate of deposit (CD) and get back at least the amount you put into it (though you may forfeit some or all of the interest you had expected to earn if you liquidate before the end of the CD's term). In a related way, investments have liquidity if you can buy or sell them quickly. For example, you could sell several hundred shares of a blue chip stock by simply calling your broker, something that might not be possible if you wanted to sell stock in a small, thinly traded company. The difference between cash-equivalent investments and securities like stocks and bonds, however, is that securities constantly fluctuate in value. So while you may be able to sell them quickly, you might get back less than you paid if you have to sell when the price is down.
  
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