ETF Dictionary

Explaining the term Liquidity with KIS Prime ETF

1. What is Liquidity? 

• The term “Liquidity” refers to the ability of a financial asset or market to be quickly and easily converted into cash without significantly affecting its value.
• This is a crucial aspect of finance and investment, impacting the buying and selling capabilities and prices of assets. Let’s look at some examples:
• Example 1: Suppose you own 1500 shares of the MIDCap ETF valued at $800. Y You decide to sell the ETF to get an iPhone and this is an example of liquidity. In this scenario, the number of ETF shares you hold is the asset you possess, and converting it into cash allows you to buy the new phone or for various purposes.
• Example 2: You have a self-art painting and want to buy an $800 iPhone by selling your artwork. Since the value of the painting is subjective, finding someone willing to buy it for the desired price might be challenging. This shows the liquidity of MidCap ETF is higher than the painting because it can be easily converted into cash without significantly reducing its value. This is a straightforward way to understand the essentials in evaluating the value and utility of assets.

2. Liquidity In Stocks and ETF?

• Liquidity in securities refers to the ability to convert cash to securities and vice versa for a stock or ETF, Stocks with high volume are frequently trading in the market, whereas those with low liquidity may face challenges in buying and selling.
• It is generally seen as positive for easy trading on the stock market. In investing ETFs, high volume means many people buy and sell, leading to stable prices. Conversely, low liquidity can increase risks as you might face difficulties in buying or selling ETFs, and prices could fluctuate sharply.
• Example: In the session on 12/21/2023, the FUEVFVND ETF recorded a trading volume of 80 million shares, while stock A had a trading volume of only 48.1 million shares and the MidCap ETF had the highest liquidity with a trading volume of 115 million shares. This indicates that the MidCap ETF is actively traded in the stock market.

By evaluating liquidity, investors can manage their portfolios more effectively. Hopefully, the explanation of the term “Liquidity” by KIS Prime will help investors make better investment decisions.

---

Mở tài khoản giao dịch ETF trực tuyến với EKYC KIS