Liquidity in financial markets refers to the ease of converting assets into cash without a significant impact on their price. High liquidity is an indicator of an active and healthy market, where investors can buy or sell assets quickly and at fair prices. Low liquidity can lead to significant price fluctuations and difficulties in executing trades. Liquidity is typically measured by trading volume and the number of transactions. Understanding liquidity helps investors make informed decisions and avoid risks associated with market volatility. Liquidity can be improved by increasing trading volume and diversifying traded assets. Liquidity plays a crucial role in market stability.