In the context of trading, liquidity refers to the ability of an asset to be easily bought and sold without affecting its price. It's a measure of how much of an asset can be bought or sold in a given time period without causing a significant change in its price.
A high liquidity asset is in high demand, has a large number of buyers and sellers, and can be easily and quickly bought or sold without affecting its price. On the other hand, a low liquidity asset has fewer buyers and sellers, making it harder to trade without affecting its price.
Liquidity is important for traders because it affects the speed and cost of executing trades. A highly liquid market allows for quick trades at low costs, while low liquidity can lead to slow trades and higher costs. High liquidity is therefore preferred in most trading scenarios, as it makes it easier to buy and sell assets as needed.