Likviidsuse

Likviidsuse, Estonian for liquidity, is a foundational concept in economics and finance describing how easily an asset or market can be converted into cash without significantly affecting its price. It applies to markets, firms, and individual assets, shaping how participants finance activities, price risk, and manage obligations.

Likviidsuse is often described through several forms. Market liquidity refers to the ease of executing large trades with minimal price movement within a given market. Funding liquidity concerns the ability of a bank or firm to obtain cash to meet short-term obligations. Asset liquidity is the ease with which a specific asset can be sold at its current price.

Key measures of likviidsuse include the bid-ask spread, trading turnover, and market depth, as well as the observed price impact of trades. Liquidity is also judged by how quickly a position can be exited and at what price. In general, high liquidity features narrow spreads, high trading volumes, and small price changes in response to trades; low liquidity features wide spreads, thin order books, and larger price moves for modest orders.

Determinants of likviidsuse include market structure, the number and activity of participants, information symmetry, transaction costs, regulatory environment, and broader macro conditions. Liquidity risk arises when an asset cannot be sold quickly without a significant price concession, potentially increasing funding costs and affecting investment decisions during stress.

Examples vary by asset class: government bonds and large-cap stocks tend to be highly liquid, while real estate, small-cap equities, and niche securities are often less liquid. Institutions manage liquidity through cash reserves, access to lines of credit, diversification, and liquidity risk metrics.