#Liquidity101 Liquidity101: What is Liquidity in Financial Markets?

Liquidity represents the ease with which an asset can be converted into cash without significantly affecting its price. A liquid market is characterized by a high number of buyers and sellers, narrow spreads between the buying and selling price, and quick transactions. Assets like cash or government bonds are highly liquid, while real estate or infrequently traded stocks are considered illiquid. Understanding liquidity is essential for assessing risks, planning investments, and ensuring efficient operations. In summary, the higher the liquidity, the lower the risk of loss due to difficulties in selling.