#Liquidity101 Liquidity is the ability of an asset to be quickly converted into cash without a significant loss of value. In the financial world, the higher the liquidity, the easier it is to sell or exchange an asset. The most liquid example is cash. On the other hand, real estate and works of art, for instance, have low liquidity — they can take time to sell and may incur discounts on price. In financial markets, shares of large companies tend to have high liquidity because there are many buyers and sellers. Conversely, shares of small companies may be less liquid. Liquidity is essential for investors, as it directly impacts the flexibility and risk of a portfolio. Highly liquid investments allow for quick reactions to market changes, while less liquid assets require long-term planning.