The ease with which an asset can be converted into cash without affecting its market price.
Liquidity refers to the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. High liquidity means assets can be traded easily without causing significant price fluctuations. Conversely, low liquidity implies that trades may be difficult to execute without impacting the price, potentially leading to wider bid-ask spreads and increased market volatility.