#Liquidity101 Liquidity refers to how quickly and easily an asset can be converted into cash without affecting its market price. Cash is the most liquid asset, while real estate or collectibles are less liquid. High liquidity means markets operate smoothly, allowing buyers and sellers to transact quickly. In contrast, low liquidity can lead to price volatility and delays in transactions. For businesses, maintaining liquidity is crucial to meet short-term obligations and unexpected expenses. Investors often consider liquidity when assessing investments, balancing potential returns with the ability to exit positions when needed. Understanding liquidity helps manage risk and financial stability.