#Liquidity101 Liquidity refers to how easily an asset can be quickly converted into cash without significantly affecting its price. Cash is the most liquid asset, while real estate or machinery is less liquid. In financial markets, liquidity also measures how easily securities can be bought or sold. A highly liquid market has many buyers and sellers, leading to tighter spreads and lower transaction costs. Businesses need liquidity to meet short-term obligations and maintain operations. Low liquidity can lead to financial stress. Key metrics include the current ratio and quick ratio, which help evaluate a company’s ability to cover its short-term liabilities.