#TradingPairs101 # **Liquidity 101: Understanding the Basics**

Liquidity refers to how easily an asset can be converted into cash (or another asset) without significantly affecting its price. It's a crucial concept in finance, trading, and investing because it impacts transaction speed, costs, and market stability.

---

## **Types of Liquidity**

1. **Market Liquidity** – How quickly an asset (stocks, bonds, crypto) can be bought or sold at stable prices.

- *High liquidity* = Many buyers/sellers, tight bid-ask spreads (e.g., Apple stock, Bitcoin on major exchanges).

- *Low liquidity* = Fewer participants, wider spreads (e.g., penny stocks, small-cap cryptocurrencies).

2. **Accounting Liquidity** – A company's ability to meet short-term obligations using liquid assets.

- Measured using ratios like:

- **Current Ratio** = Current Assets / Current Liabilities

- **Quick Ratio