#Liquidity101
Understanding **liquidity** is key for any investor and trader. Simply put, it is a measure of how easily an asset can be converted to cash without significantly affecting its price. Highly liquid assets, such as stocks of large companies or government bonds, can be quickly bought or sold.
Low liquidity, on the other hand, means that an asset may be difficult to sell without a significant change in price. This can happen with small-cap stocks, real estate, or certain collectibles.
Liquidity is important as it affects your trading opportunities and risk. High liquidity provides better order execution and smaller spreads between buying and selling prices. Low liquidity can lead to large price fluctuations.
Always assess the liquidity of an asset before investing. This will help avoid unpleasant surprises and ensure greater flexibility in your portfolio.
