#Liquidity101
#Liquidity101: Understanding the Basics
Liquidity is a fundamental concept in finance that refers to how easily an asset can be converted into cash without significantly affecting its price. Cash is the most liquid asset, while things like real estate or art are less liquid because they take time and effort to sell.
There are two main types of liquidity:
Market Liquidity – This is how quickly you can buy or sell an asset in the market without causing a drastic price change. Stocks of large companies usually have high market liquidity.
Accounting Liquidity – This is a measure of a company’s ability to pay off its short-term debts with its current assets (like cash, receivables, or inventory).
Why does liquidity matter? High liquidity ensures you can access cash when needed—whether it’s for an emergency, a business opportunity, or meeting financial obligations. For businesses and investors alike, maintaining a healthy level of liquidity is key to financial stability.
In short, liquidity keeps money moving—and movement is life in the financial world.