#Liquidity101 Liquidity refers to how easily and quickly an asset can be converted into cash without significantly affecting its price.

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🏦 Types of Liquidity

1. Market Liquidity

Definition: How easily assets can be bought/sold in a market.

High liquidity: Stocks like Apple (AAPL) on the NASDAQ (many buyers/sellers).

Low liquidity: Rare collectibles or niche real estate (fewer buyers/sellers).

2. Accounting Liquidity

Definition: A company’s ability to meet short-term obligations using its current assets.

Measured by: Ratios like:

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

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🔄 Examples of Assets by Liquidity

Asset Type Liquidity Level

Cash Highest

Checking account Very High

Stocks/Bonds High (depends on market)

Real Estate Low

Art/Collectibles Very Low

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💥 Why Liquidity Matters

For individuals: Liquidity helps you handle emergencies without needing loans.

For businesses: It ensures they can pay bills, payroll, and other short-term costs.

For investors: A liquid market lets you enter/exit positions quickly at a fair price.