#Liquidity101

What is Liquidity? Liquidity refers to the ease with which an asset can be bought or sold in the market without causing a significant change in its price. It is a fundamental concept in finance, applicable to traditional markets (stocks, bonds, forex) and cryptocurrencies. There are two main types of liquidity: Market Liquidity: Measures the efficiency with which a market allows transactions at stable prices, characterized by high trading volumes and reduced bid-ask spreads. Liquid assets, such as cash, can be quickly converted into other assets. Less liquid markets, such as real estate or small-cap stocks, may require discounts for quick sales. Accounting Liquidity: Refers to a company's ability to meet its financial obligations with available assets, used to assess the financial health of an organization.