How Liquidity Impacts the Attractiveness of an Asset
Liquidity refers to how easy or hard it is to exchange an asset at an identifiable market price. Greater levels of liquidity improve pricing and reduce transaction costs by attracting a large number of potential buyers and sellers. Lower levels of liquidity worsen pricing and increase transaction prices, deterring potential investors.
There are four key components to measuring an asset’s liquidity: the size of the market, the number of transactions, the transparency of pricing and whether or not there are restrictions to buying and selling.
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