#Liquidity101

*Liquidity 101: A Quick Guide*

Liquidity refers to how easily an asset can be converted into cash without affecting its market price. Here's what you need to know ¹:

- *What is liquidity?*: The ease of buying or selling assets without causing significant price changes.

- *Types of liquidity*:

- *Market liquidity*: Ability to buy or sell assets quickly without affecting prices.

- *Funding liquidity*: Ability to meet financial obligations.

- *Importance of liquidity*:

- *Better prices*: Tight spreads mean fair prices.

- *Efficient trades*: Quick execution without delays.

- *Confidence*: Knowing you can enter or exit trades smoothly.

- *Key terms*:

- *Maker*: Adds liquidity by placing limit orders.

- *Taker*: Removes liquidity by executing trades.

- *Spread*: Difference between bid and ask prices.

- *Depth*: Number of buy and sell orders at different price levels.

- *Slippage*: Getting a different price than expected due to low liquidity.

Understanding liquidity helps you navigate financial markets and make informed investment decisions.