InsiderFlow › Glossary › What is liquidity?

What is liquidity?

Liquidity has two meanings: the cash available in a portfolio, and how easily an investment can be sold without losing value.

As a reserve, liquidity is the cushion that keeps you from selling investments at the worst times: the classic rule suggests 3–6 months of expenses in an account before you even start investing.

As an asset trait, a security is liquid if you can sell it immediately at a price close to market. Apple shares are extremely liquid; a house or a thinly traded small cap is not. Illiquidity is a risk that deserves a premium.

Concrete example

In 2008 many investors had to sell houses and illiquid assets at steep discounts to raise cash: liquidity is worth most precisely when everything collapses.

How you see it in InsiderFlow

On InsiderFlow these concepts come alive on real data: what big funds and insiders are buying, explained every day.

Frequently asked questions

How much cash should you hold?

An emergency fund of 3–6 months of expenses, plus optional dry powder for opportunities: the rest sitting idle loses value to inflation.

What makes a security liquid?

High trading volumes and tight bid-ask spreads: you can get in and out without moving the price.