Liquidity 101: Liquidity refers to how easily assets can be bought or sold without affecting their price. High liquidity means there's a large volume of buyers and sellers, making transactions fast and efficient. Cash is the most liquid asset, while real estate or collectibles are less liquid. In financial markets, liquidity is crucial for stability and fair pricing. Market makers, trading volume, and bid-ask spreads are key indicators of liquidity. Low liquidity can lead to price volatility and higher transaction costs. Understanding liquidity helps investors manage risk, optimize portfolios, and make smarter financial decisions across different asset classes.
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