#Liquidity101 Liquidity is how easy and quick you can convert an asset into cash without losing its value. It is fundamental to understand how financial markets work.

An asset is liquid if you can sell it instantly and at a fair price (like cash, shares of large companies, or popular cryptocurrencies like Bitcoin). On the other hand, an asset is illiquid if it takes you a lot of time or you have to lower its price to sell it (like a house, a piece of art, or shares of very small companies).

Why does it matter?

Liquidity is crucial because:

* It allows you to buy and sell quickly in the market.

* It reduces the risk of an asset's price moving sharply due to a trade.

* It involves lower costs when trading (the difference between the buying and selling price is smaller).

* It helps the price better reflect the actual value of the asset.

It is primarily measured by trading volume (how many trades are made) and the "spread" (the difference between the buying and selling price).

If there is low liquidity, it will be hard to sell, you could lose money due to unexpected price changes, and trading costs will be higher. In summary, good liquidity means a more efficient and stable market.