#Liquidity101 Liquidity in finance refers to the ease with which an asset can be converted into cash without significantly affecting its market price. Cash is the most liquid asset. High liquidity indicates that an asset can be bought or sold quickly, with minimal cost or price fluctuation.

There are two main types:

* Market liquidity concerns how easily an asset can be traded in a market. High market liquidity means there are many buyers and sellers, leading to narrow bid-ask spreads and efficient transactions.

* Accounting liquidity measures a company's ability to meet its short-term financial obligations using its liquid assets. This is often assessed using ratios like the current ratio or quick ratio.

Liquidity is crucial for individuals, businesses, and markets, as it enables flexibility, manages risk, and ensures smooth operations. Illiquid assets, like real estate, take more time and effort to convert to cash and may require price discounts.