#Liquidity101

What Is Liquidity?

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

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๐Ÿ”‘ Types of Liquidity:

1. Market Liquidity

How easily assets (like stocks, crypto, or real estate) can be traded.

High liquidity = fast, easy trades with minimal price slippage.

Low liquidity = harder to buy/sell, larger price swings.

Example:

BTC/USDT has high liquidity โ†’ trades quickly with tight spreads.

A small altcoin may have low liquidity โ†’ harder to trade without big price impact.

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2. Accounting Liquidity

A companyโ€™s ability to meet short-term financial obligations.

Measured using ratios like:

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = (Cash + Receivables) / Current Liabilities

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๐Ÿ› ๏ธ Why Liquidity Matters

Traders want high liquidity to enter/exit positions easily.

Investors want liquidity to avoid getting stuck in an asset.

Markets need liquidity to remain stable and efficient.

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๐Ÿ“‰ Signs of Low Liquidity

Wide bid-ask spreads

Low trading volume

Price slippage when making large trades

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๐Ÿ“ˆ How to Check Liquidity

Look at 24h volume (crypto/stocks)

Check order book depth

Use liquidity pools (DeFi context, like Uniswap)