#Liquidity101

Liquidity refers to the speed and ease with which an asset can be converted into cash without affecting its market price. Cash is the most liquid asset, while things like real estate or collectibles are considered illiquid because they require time and effort to sell. In financial markets, liquidity also describes the ease with which securities can be bought or sold. High liquidity means there are many buyers and sellers, leading to tight spreads between bid and ask prices and minimal price fluctuations. Low liquidity can lead to price volatility and difficulties in executing transactions. For businesses, liquidity indicates the ability to meet short-term obligations, typically measured by ratios such as the current ratio or the quick ratio.