What is the meaning of “liquidity” in financial markets?

Liquidity in financial markets refers to how quickly and easily an asset can be bought or sold without causing a significant impact on its price. A highly liquid asset is one that can be easily converted to cash at or near its market value, such as stocks of large, well-known companies. In contrast, illiquid assets are harder to sell quickly or may require a significant price discount to find a buyer, such as real estate or specialized business assets. Liquidity is an important consideration for investors, as it allows them to enter and exit positions efficiently, particularly in volatile market conditions.