#Liquidity101 Liquidity 101: Understanding the Basics

Liquidity in finance refers to the ease with which an asset can be converted into cash without affecting its price. Cash is the most liquid asset, followed by marketable securities like stocks and bonds. In contrast, assets such as real estate or collectibles are less liquid due to the time and effort required to sell them .

Liquidity is crucial for both individuals and businesses to meet short-term obligations. Financial ratios like the current ratio, quick ratio, and cash ratio are commonly used to assess liquidity levels .

In financial markets, liquidity ensures that assets can be bought or sold quickly, maintaining market stability. A lack of liquidity can lead to increased volatility and difficulty in executing trades .