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Finance GlossaryLiquidity
Liquidity
Definition of Liquidity
Liquidity determines the ease with which an asset can be sold in exchange for cash at or around its current market price. Liquidity is also used in the context of businessess, where the term indicates the company’s ability to secure loans to fulfil short term debt obligations or to sell its assets and procure cash in exchange.
Related Terms
Exponential Moving Average
Exponential Moving Average (EMA) is a technical indicator used to follow price trends over a specific period of time. EMA assigns more weight to recent prices than older prices. The formula to calculate EMA is:
Exponential Moving Average = (K x (CP - PP)) + PP
C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant
A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.
Exponential Moving Average = (K x (CP - PP)) + PP
C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant
A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.
Equity Market
The Equity Market is a place where shares are traded, money is raised, and stock is offered to investors. That's why it is divided into two categories:
- Primary Market: An equity market where shares are offered to investors for the first time through IPOs while fundraising also happens through private placements.
- Secondary Market: An equity market where shares, bonds, futures, options, more are traded
The primary market is typically over the counter but may be regulated in the case of exchange traded IPOs. The secondary market is often well-regulated as most securities listed are exchange traded.
Doji Pattern
A Doji is a candlestick pattern that is formed when the open and close price of a share or market is identical. The word Doji means indecision in Japanese, which is fitting because the Doji pattern is an indicator of indecisiveness. In terms of appearance, a Doji looks like a cross or like the letter T.
Internal Rate Of Return
Internal Rate Of Return (IRR) is used to measure the compound annual return generated by a financial asset. IRR is a tool in Discounted Cash Flow financial analysis that operates by bringing the Net Present Value (NPV) of cash flow to zero. That’s why IRR can be used to compare a variety of financial assets from the equity market or bond market to real estate.
Program Trading
Program trading, which is frequently linked with algorithmic trading, is the use of computer algorithms for automatically generating and executing orders in large volumes based on predetermined sets of rules, such as price or timing conditions. It is the buying or selling of a basket of stocks at the same time. Program trading has significantly increased the speed and volume of market transactions and is commonly employed in arbitrage, index arbitrage, and portfolio insurance strategies.
Non-Voting Shares
Non-Voting Shares are shares that give investors ownership and dividend rights but do not grant the right to vote on company matters. These shares are often issued to raise capital without diluting control, allowing founders or promoters to retain decision-making power while offering economic benefits to shareholders.
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