What Is Liquid Equity?
An equity is another name for a company stock. When you buy shares in company stock, you take an ownership interest in the company and each share of stock represents a percentage of company equity you own. Equities are usually liquid, which means you can buy and sell them quickly. However, the level of liquidity can vary greatly among different company stocks.
Other People Are Reading
-
Equity Basics
-
When a company wishes to raise money for future growth and operating expenses, they can sell ownership shares to investors. A stock share represents one unit of equity in the company that issued it. If a company issues 100 shares of stock, one stock would represent a one percent ownership equity in the company. Most companies, however, typically issue millions of shares, which means that each stock share represents a very small equity percentage.
Liquidity
-
In financial terms, liquidity is the measure of how fast you can turn something into cash. For example, if you own a house, it can sometimes take many months or even years to sell it in order to turn your investment into cash. Thus, a house is not a liquid investment. A financial equity, by comparison, is very liquid. If you wish to sell a stock, you can usually sell it within a matter of minutes or even seconds.
-
Trading Volume
-
In the stock market, liquidity is measured by trading volume. Trading volume is the number of stock shares that exchange hands each day. Some stocks are very popular and trade millions of shares per day, while other stocks from lesser-known companies may only have a few hundred shares exchange hands in a day.
How Liquidity Affects Investors
-
Highly liquid stocks, such as Apple Computer, have trading volume that measures in the millions. If an equity is very liquid, you can usually buy or sell almost immediately at the price that is currently being quoted by your broker. If a stock has low trading volume, however, you may find that you have to pay a higher price in order to buy it quickly, or offer a lower price in order to sell it quickly.
-
