In the context of financial securities, what does the term "liquid" refer to?

The term "liquid" in the context of financial securities refers to the ease with which an asset can be converted into cash without significantly affecting its market price. Liquid assets, such as stocks and bonds, can be quickly sold in the market, providing the owner with immediate cash in hand. This characteristic of liquidity is crucial for investors who may need to access their money quickly or require flexibility in managing their investments.

For instance, a highly liquid security can usually be sold quickly at a price close to its market value, minimizing any loss from having to sell the asset. This is in contrast to illiquid assets, like certain real estate properties or collectibles, which may take much longer to sell and might require a price discount to facilitate a quick sale. Understanding liquidity is essential for financial decision-making, particularly in managing cash flow and making investment choices.