What are liquid assets?

Liquid assets are assets that can be easily converted to cash without losing their value. They usually have an established market with several buyers and sellers and their ownership can be transferred without much difficulty. What investments are considered liquid assets besides cash and cash equivalents? Stocks, bonds, marketable securities and mutual funds, among others.  

Are stocks liquid assets?

The answer is generally yes, but it depends on the kind of stock. 

Publicly traded stocks are generally considered liquid assets. Blue chips as well as large and medium-cap stocks have high trading volumes, transparent prices and are traded on big stock exchanges, like the New York or the London Stock Exchange. You should be able to get your cash a couple of days after you place the order at your broker. 

More thinly traded stocks, like small-caps that are listed on regular stock exchanges, can be harder to liquidate, especially in large quantities. This is not a concern for the average retail investor but rather for asset managers and hedge funds that hold positions worth millions of dollars. These stocks have fewer shares available for trading, which makes them less liquid, meaning that a large buy or sell order can easily move the price.

Buyers can be hard to find for penny stocks, which are often thinly traded, illiquid securities. This means that traded volumes are low and the number of potential buyers and sellers is limited. This is one of the reasons why they are considered riskier than other, more liquid securities.

Stocks that are not listed on any exchange, the so-called OTC (over-the-counter) stocks, can be difficult to sell. These stocks are quoted on OTC systems, like the OTC Bulletin Board (OTCBB) and the OTC Markets Group. These aren’t regulated stock exchanges but interdealer quotation services. The issuers of these stocks are usually smaller, less known or sometimes even troubled companies. Their average daily volume is quite telling if you want to find out how easy it is to buy or sell shares in these firms. Even if you find a buyer, there is a chance that you have to sell your stocks at a lower price than you wanted.

What else do you need to know about assets and asset classes?

If you’d like to broaden your knowledge, check out the following articles: 

• Investment Asset Classes
• What is an asset manager?
• What are liquid assets?
• What are tangible assets?
• What are alternative investments?
• What is asset allocation?