What is liquidity?

In financial markets, liquidity typically means ‘money’ or ‘assets’ (e.g. liquidity provision = lending money or assets to others, so they can use them to trade).

But liquidity also refers to how easy something is to buy, sell or trade.

High liquidity means there’s a big market for an asset, meaning it can be bought and sold quickly, at a steady market price.

For example: 

Cash is highly liquid. You can trade it for goods and services just about anywhere in the world.

Rare art is relatively illiquid. Buyers & sellers are harder to come by, and a work’s price can vary wildly from year to year, as demand fluctuates.

In the crypto world, most investors look for tokens with high liquidity. They want to know that if they buy a cryptocurrency, they will be able to trade or sell it in the future.