Liquidity most commonly refers to the ease with which an investment asset (stock, bond, mutual fund, etc.) can be converted into cash, in a short period of time, without a significant decrease in its price or value.
For an item to truly be considered liquid, there has to be an ongoing and active market of both buyers and sellers of that specific security.
Within any one class of assets, such as individual stocks, some investments may be very liquid while others may be very hard to buy and sell. Additionally, assets that were previously very liquid can instantly become illiquid if all the willing buyers or sellers no longer wish to trade in that security.
Aside from actual currency, the most liquid assets are generally considered to be: bank deposits, money market accounts, short-term bonds and CD's. Conversely, art work, collectibles, raw land, and ownership in a business are considered some of the most illiquid assets.
