Macro
Liquidity
At the market level, liquidity describes how readily you can trade an asset near its quoted price. A deeply liquid market like large-cap U.S. stocks absorbs big orders with little disruption, while thin markets can swing sharply on modest trades.
At the macro level, liquidity means the overall availability of money and credit, which central banks influence through interest rates and their balance sheets. When liquidity is abundant, capital tends to flow into riskier assets in search of returns.
Because the tide of liquidity lifts or lowers nearly all boats, following it is central to understanding capital rotation. Many market turning points trace back to a change in how much money is sloshing through the system.
Example
When central banks flood the system with liquidity, even lower-quality assets often rally as cash searches for a home.
Liquidity — FAQ
What is Liquidity?
Liquidity refers to how easily assets can be bought or sold without moving their price, and more broadly to the amount of money and credit flowing through the financial system.
Can you give an example of Liquidity?
When central banks flood the system with liquidity, even lower-quality assets often rally as cash searches for a home.
Understanding creates conviction.
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