#Liquidity101
Liquidity refers to how easily an asset can be converted into cash without affecting its price. High liquidity means quick sales at stable prices (e.g., stocks, forex). Low liquidity can lead to delays or price drops (e.g., real estate, rare collectibles).
**Why it matters:**
- **Markets:** Liquid markets have tight bid-ask spreads and high trading volume.
- **Investors:** Ensures flexibility to enter/exit positions fast.
- **Businesses:** Cash flow liquidity (like working capital) keeps operations smooth.
**Key terms:**
- **Market liquidity:** Asset tradability.
- **Accounting liquidity:** Ability to cover short-term debts (measured via ratios like *current ratio* or *quick ratio*).
Illiquid assets may offer higher returns but carry higher risk. Balance is key!