#liquidity101

Liquidity in trading refers to how quickly and easily an asset can be bought or sold in the market without significantly affecting its price.

Key Points:

1. High Liquidity:

Assets like major stocks (e.g., Apple, Microsoft) or currencies (e.g., USD/EUR) are highly liquid.

You can enter and exit positions quickly.

Bid-ask spreads (difference between buy and sell prices) are narrow.

2. Low Liquidity:

Assets like small-cap stocks, exotic cryptocurrencies, or certain real estate are less liquid.

It’s harder to find buyers/sellers, and prices may be more volatile.

Wider bid-ask spreads.

Why Liquidity Matters:

Lower Transaction Costs: High liquidity means tighter spreads and lower slippage.

Easier Trade Execution: You can place larger orders without moving the market much.

Risk Management: It’s easier to exit a position quickly in volatile situations.

In short, liquidity affects how efficiently a market operates and is a major factor in assessing trade risk and strategy.