#Liquidity101
#Liquidity101: What Is Liquidity?
Liquidity 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 collectibles are less liquid due to the time and effort required to sell them.
In financial markets, liquidity is crucial. High liquidity means there are many buyers and sellers, enabling smooth, fast transactions. For investors, this reduces the risk of price slippage when entering or exiting positions.
For businesses, liquidity also refers to having enough current assets (like cash and receivables) to meet short-term liabilities. Strong liquidity signals financial health and operational flexibility—essential in both investing and running a company.
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