#Liquidity101

Liquidity refers to how easily an asset can be bought or sold in the market without affecting its price. High liquidity means there are many buyers and sellers, so transactions happen quickly and at stable prices. Cash is the most liquid asset, while real estate is less liquid. In trading, liquidity is crucial—it ensures smoother order execution and tighter bid-ask spreads. Exchanges with high liquidity allow traders to enter or exit positions efficiently. Low liquidity can lead to price slippage or delayed trades. In crypto, liquidity pools (like in DeFi) allow users to swap tokens without needing a traditional order book. Overall, liquidity reflects a market’s health and efficiency, affecting risk and profitability for traders and investors.