Liquidity is determined by two simultaneous conditions: sales speed and no need to reduce price. An asset that can be sold quickly but only at a steep discount is not liquid.
It is measured by several criteria: transaction frequency, trading volume, bid-ask spread width, order book depth. A narrow spread and consistent presence of orders on both sides mean the transaction can be completed without slippage on entry and exit.
Liquidity has a price. Less liquid instruments typically offer higher returns—a premium for the difficulty in exiting positions quickly. Accordingly, elevated returns on lesser-known issues are partly explained not by issuer risk, but by their low tradability.
For the Uzbek market, this is a key practical factor. The liquidity difference between individual securities here is greater than the difference in their returns, so checking transaction history should precede analyzing issuer financials: an instrument that cannot be sold requires different maturity planning regardless of its quality.