#Liquidity101

Liquidity in financial markets refers to the ease with which an asset can be bought or sold without significantly impacting its price. High liquidity means there's a deep pool of buyers and sellers, allowing for quick transactions at stable prices. This leads to narrow bid-ask spreads (the difference between the highest buy price and lowest sell price) and less "slippage," where the actual execution price deviates from the expected price.

Conversely, low liquidity indicates fewer participants, making it harder to execute trades without causing large price swings. Illiquid assets can be difficult to sell at fair value, leading to higher transaction costs and increased risk for traders. Overall, liquidity is crucial for market efficiency, price discovery, and investor confidence.