#Liquidity101 Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price. Cash is the most liquid asset, while real estate and collectibles are considered illiquid. High liquidity in financial markets means assets can be traded efficiently with minimal price fluctuations. Investors prefer liquid markets because they offer flexibility and reduced transaction costs. Businesses also benefit from liquidity by meeting short-term obligations without raising external funds. Central banks monitor liquidity to ensure market stability. Understanding liquidity helps individuals and institutions manage risk, plan investments, and maintain financial health during both normal and turbulent times.