What is liquidity? Don’t let your money get trapped
Liquidity measures how quickly assets convert to cash without significant value loss. The three main types are market liquidity (ease of buying/selling without price impact), accounting liquidity (company's ability to meet short-term obligations), and asset liquidity (specific asset conversion speed). Highly liquid assets include cash, stocks, and government bonds; illiquid assets include real estate and collectibles. Companies measure liquidity using current ratio, quick ratio, and cash ratio. Liquidity provides financial flexibility but differs from profitability—companies can be profitable yet face liquidity crises. Low liquidity increases price slippage, volatility, and risk during market stress.
