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Basically, it is the ability of an asset to be converted into cash quickly (sold) without significant loss of value.

For instance, a real estate asset (plot of land) is not as liquid as an equity asset (shares).

When the stock market is said to be liquid, it indicates that there is a lot of cash in the economy that is finding its way to the stock market.

A stock is said to be liquid when the shares are actively traded and are available in large volume. So the stock price will not be dramatically moved by a few buy or sell orders.
However, shares in small companies with much fewer shares are generally considered illiquid. Because one or two big orders can move the price up or down sharply.

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