#Liquidity101 Liquidity is the ability of an asset to be sold or exchanged for another asset without affecting the market price. It is important to understand liquidity in investments, as liquid assets can be easily sold or exchanged when needed. High liquidity allows investors to respond to market changes quickly and effectively. Conversely, illiquid assets can lead to significant losses if they must be sold in a short time. Therefore, it is important to consider liquidity when selecting investments.