Liquidity refers to how quickly and easily an asset can be bought or sold in the market without affecting its price. High liquidity means assets can be traded swiftly with minimal price impact—common in markets like major stocks or currencies. Low liquidity leads to wider spreads and price volatility, as seen in rare or less-traded assets. In trading, liquidity ensures smoother entries and exits, tighter spreads, and better price execution. Market makers and volume play a big role in maintaining liquidity. Understanding liquidity is essential for smart trading decisions and effective risk management in any financial market.
