#Liquidity101 Liquidity in trading refers to how easily an asset can be bought or sold in the market without significantly affecting its price. An asset is considered highly liquid if it can be quickly converted into cash with minimal price change—examples include major stocks, currencies, and government bonds. Low liquidity means fewer buyers and sellers, which can lead to larger price swings and difficulty executing trades at desired prices. Liquidity is crucial because it affects how fast trades can happen and how much they cost. Bid-ask spread—the difference between the highest price a buyer is willing to pay and the lowest price a seller will accept—is a key indicator of liquidity. Narrow spreads usually mean higher liquidity. Markets with high liquidity are more stable and efficient, while low-liquidity markets carry more risk. For traders and investors, understanding liquidity helps in making better decisions about entry, exit, and risk management.