Understanding Liquidity in Equity Markets

In an equity market setting, market microstructure refers to the processes and mechanisms through which securities are traded. It encompasses the details of how orders are executed, how prices are established, and the behavior of market participants.

One common terminology within market microstructure is the concept of liquidity. In this context, liquidity is often understood as the ability to quickly buy or sell a security without causing a significant impact on its price.

Which of the following options best defines liquidity in the context of a financial market?