Do you often find yourself struggling to make ends meet and wondering how you can start saving money from your paycheck? You're not alone! 🙌 Many of us face the challenge of breaking bad spending habits and learning to save for the future. But fear not, because we're here to help you unlock the secrets to successfully saving. 

In this insightful blog post, we'll explore effective tips and recommendations to maximize your hard-earned cash. From practical strategies to smart saving habits and automating your savings, we've got you covered! Whether you're a financial novice or already on your way to fiscal greatness, these positive payday tips will set you on a path toward financial success, no matter what job you have.

So, if you're ready to take control of your finances and make every penny count, read on as we delve into the world of salary saving and provide you with useful tips to start making the most out of your paycheck. After all, you can't put a price on financial freedom.

Introducing the 50/30/20 Rule: Your budgeting cheat sheet 

If you've been staring at your bank balance, wondering where all your hard-earned money goes, fret not! We've got a simple and effective solution for you – the 50/30/20 rule.

Here's how it works: You allocate 50% of your income towards necessities like rent, groceries, debt, and bills. We're talking about those everyday items you just can't live without. Then, you've got 30% earmarked for discretionary spending – the fun stuff like dining out or treating yourself to a little retail therapy. Finally, be a money-savvy superstar by directing 20% of your income into savings. Cha-ching!

By embracing this rule and its benefits, you'll achieve balance in managing your finances, without feeling overwhelmed. Plus, it's a flexible guideline, which means you can adjust the percentages to suit your unique financial circumstances.

Pay your bills right away

Paying your bills promptly is key to staying on top of your finances. Many people make the mistake of waiting until the end of the month to pay their bills, which can lead to unnecessary costs and even having to dip into their savings.

To avoid this, it's best to prioritize your bills and schedule them for the beginning of the month. Start by arranging your bills in order of importance – rent/mortgage, utilities, internet, etc. Make sure the most critical bills, like rent and child support, are paid around payday when you have enough funds available.

By managing your bills in this way, you'll avoid the stress of running out of money before your next paycheck and the additional charges that come with late payments.

Set up auto-transfers to avoid temptations

Want to save money without even thinking about it? Well, we've got a neat trick for you! All you need to do is set up automatic transfers into your savings account on payday.

This powerful strategy allows you to effortlessly save a predetermined amount of money every month. The beauty of automatic transfers is that they happen instantly, with no time for second thoughts or impulse buys.

By making this helpful habit a part of your financial routine, you can take charge of your savings goals and steadily grow your funds. It's a simple yet effective way to credit your savings account.

Define your saving goals

Saving money is always a great idea, but it becomes even more powerful when you have specific goals in mind. Whether you're aiming to buy a house, plan your dream vacation, or save for retirement, setting targets can help you stay focused on what truly matters to you.

Having a clear savings goal, or even multiple ones, gives you a sense of purpose and helps you resist the temptation of impulsive purchases. Instead of getting distracted by small expenses, you'll keep your eye on the bigger picture every payday.

So take a moment to think about your goals and start setting up savings targets that will guide you on your financial journey.

Enjoy the occasional shopping splurge

Balance is essential when it comes to keeping your finances in shape. Just like the importance of occasional treats in a diet, it's important to give yourself permission to splurge every now and then. Yes, you can definitely occasionally treat yourself to that delicious cupcake, it’s important to give yourself permission to have a bit of fun with your money. 

By completely depriving yourself of enjoying life's pleasures, you may end up going overboard later on and creating bigger financial issues for yourself.

Think of it this way - even if you are diligently saving money, it won't matter much if you're not allowing yourself to have some fun. You don't want to miss out on life's little joys just because you're focused solely on saving.

That's why it's important to incorporate moderate splurges into your monthly budget. There's absolutely no need to feel guilty about it. After all, everyone deserves to treat themselves and enjoy life. As long as you're still practicing other good financial habits and sticking to your overall saving goals, indulging in occasional splurges won't derail your progress.

A quick note of effective debt management

Debt management is crucial for anyone looking to improve their financial health and save money. Paying off debts allows individuals to free up their income, reduce interest payments, and gain greater financial freedom. From credit cards to mortgage, the sooner these are paid off the less interest one has to pay.

Effective debt management techniques include the debt snowball and debt avalanche methods. The snowball method involves paying off smaller debts first and then moving on to larger debts, providing motivation from quick wins. The avalanche method prioritizes high-interest debts first to minimize interest payments over time. Both strategies can help individuals regain control of their finances and achieve long-term debt freedom.

In conclusion

Saving money from your paycheck doesn't have to be a daunting task. By implementing simple strategies like the 50/30/20 rule, paying bills promptly, setting up automatic transfers, defining saving goals, and allowing yourself the occasional splurge, you can take control of your finances and set yourself up for financial success. 

Remember, it's all about finding that balance between saving for the future and enjoying life's little pleasures. So go ahead, start implementing these tips, and watch your savings grow while still enjoying the journey. You've got this! ✨

Harnessing a wealth of security strategies, fintechs and banks employ several safeguarding measures to protect your hard-earned money. But, as one might expect, fraudsters continually strive to discover ways to exploit these protections.

In this article, let's delve into the tactics used by criminals to attempt to manipulate you into authorising card transactions inside the Tap app. These aren't transactions that originate from your usual activity, instead, they are crafty attempts at transactions initiated by nefarious individuals looking to exploit your finances.

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Stolen card schemes
The initial phase of this deception involves a criminal acquiring credit or debit card details. Such information could either be procured during genuine organisation data breaches or through responding to deceitful texts or emails, which is widely known as phishing or smishing. These messages often pose as credible businesses. In certain cases, they could even resort to physically stealing your card.

There are some preventive measures you can take to safeguard your personal and financial data: 

1. Cultivate a healthy scepticism when it comes to text messages or emails containing links, especially those urging for payment details or requesting account login.

2. Instead of immediately clicking on links in messages that appear to be from “reputable companies”, consider an alternative method. Use Google to search for them independently (without using the provided link in their message) to ensure their credibility. Conducting your own research can effectively protect you against possible scams.

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Safe account fraud schemes
Scammers get creative to try to trick you out of your money. A common trick is to make you worry about your bank account's safety. They might call you, making it look like it's from a real bank or fintech pretty convincingly — a trick usually known as 'spoofing.'

During such a call, they might ask you to approve a card transfer, suggesting it will move your money to a 'secure place' as protection. To sound convincing, they might even tell you that any payment you can see on your app isn't real and is instead a 'test' of your account's safety.

However, it's crucial to remember that legitimate financial institutions will never prompt you to relocate your finances or process payments to ensure your account's security. Instead, they already have stringent security measures in place to protect your money.

If you receive such a call, take a moment and think. You're better off hanging up and checking things out. Tap support and security team will never call you over the phone. It's always smarter to take a moment to be safe than regret being in a hurry later.

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Impersonating refund scams
An additional technique employed to deceive individuals into authorising a card payment through their app involves fraudulent calls wherein the caller pretends to represent an online store. Picture this: You receive a call with the caller claiming an unauthorised purchase has been made using your card. 

Naturally, your immediate reaction is denial, because you didn't make that purchase.

But here comes the twist. The tricksters would insist that in order to rectify the error and process your refund, you need to confirm the payment in your app. It sounds counterintuitive, right? That's because it is!

In both instances, the authenticity of these scams lies in the detailed knowledge that the fraudster already possesses your card – they have all the information required to initiate a payment (refer to the previous section named 'Stolen card schemes'). 

The illusion of their credibility sparks a false sense of security, leading you to authorise the payment. Unfortunately, when you authorise the payment within the application, you're effectively granting permission for the funds to be debited from your account.


How criminals try to bypass security measures
Criminals continually seek ways to evade security measures, particularly those designed to protect online financial transactions. One such protective measure is 3DSecure, deployed to fortify the safety of your online card transactions. 

3DSecure functions by prompting the cardholder to authenticate certain transactions using their Tap application. This verification process ensures that the individual carrying out the payment is indeed the card's legitimate owner and not an unauthorised party.

Intriguingly, scammers have constructed a strategy to bypass this safeguard. Their preferred method is a telephonic approach, attempting to manipulate unsuspecting individuals into authorising transactions on their behalf.

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What steps can I take to safeguard myself?

When finance meets technology, the world is your oyster - until you encounter a scam. Spotting a scam is your first line of defence. If a random individual approaches you, pressuring you to approve a card payment through your app, hug your inner sceptic. This rings alarm bells for a scam. Should you find yourself in such a pickle, don’t hesitate - hang up, firmly dismiss it, and message the Tap support team to report the incident.

Fortifying your financial fortress is an easier task than before, thanks to the accessibility of financial apps. The Tap app puts the power of financial security in your hands - literally! Located under the 'Cards' tab, you'll find a freeze card toggle. A quick press of this nifty control will lock your card, thus preventing unauthorised transactions.

Just like you wouldn't let a stranger inside your home, it's wise not to accept card payments that you never asked for. This could leave you susceptible to scams, meaning your hard-earned money risks vanishing into thin air.

Despite your best efforts, if you find yourself entangled in a fraudulent scenario - don’t despair. Our customer service team is there for you. Contact them through the Tap app live chat or via email immediately. 

Finally, pay a visit to the security section of our blog, where you will find tips to be armed with extra tips for dodging scams as you proceed on your personal finance journey. Remember, stay savvy, stay safe, and keep nurturing your financial know-how.

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What Are Fiat On-Ramps and Off-Ramps?

For many users, one of the biggest challenges in the crypto space is figuring out how to move between traditional money and digital currencies safely and easily. That’s where fiat on-ramps and off-ramps come in. These essential gateways allow users to convert their local currency (like US dollars, GB pounds, or euros) into crypto and back again, helping bridge two financial worlds.

In this guide, we’ll break down what each type of ramp means, how they work, and why they’re critical for expanding real-world crypto adoption.

What Is a Fiat On-Ramp?

A fiat on-ramp is a service that lets users buy cryptocurrencies using traditional fiat currencies such as USD, EUR, or GBP. In other words, it’s the entry point into the world of crypto. Exchanges, brokerage platforms, and payment services act as intermediaries, processing financial transactions and converting fiat money into assets like Bitcoin, Ethereum, or stablecoins.

Common examples include centralized exchanges or fintech apps that integrate blockchain functionality. On-ramps are regulated financial services that typically require Know Your Customer (KYC) verification to comply with laws on anti-money laundering and consumer protection.

When choosing a fiat on-ramp, users should evaluate fees, supported currencies, and security standards to ensure a smooth and safe experience.

The Advantages and Disadvantages of Fiat On-Ramps

Fiat on-ramps make entering the crypto market much easier, particularly for beginners. They simplify the process of buying digital assets without requiring technical expertise.

They also open the door to a diverse set of cryptocurrencies, letting users explore different projects and blockchain networks. Some on-ramps even offer instant payment methods through debit or credit cards, wire transfers, or mobile apps like Google Pay, enabling fast transactions and greater convenience.

From a business perspective, on-ramps support financial inclusion by connecting traditional banking systems to blockchain-based platforms, driving mainstream adoption and innovation across the fintech industry.

While fiat on-ramps are convenient, they also come with a few challenges. Users must comply with verification and regulatory requirements, which can take time. Another potential issue is exposure to fraudulent or unlicensed platforms, which can compromise data or funds. To minimize these risks, users should choose on-ramps that offer transparent pricing and operate in full compliance with financial regulations, like Tap.

In addition, on-ramps might charge higher transaction or processing fees, especially for card purchases or smaller amounts. To keep fees low and help users get the best crypto deals without platform hopping, Tap uses a top-of-the-line smart router.

What Is a Fiat Off-Ramp?

A fiat off-ramp performs the opposite function: it lets users sell cryptocurrency and receive fiat money in their bank account. Off-ramps provide liquidity and help people turn crypto assets into spendable cash.

Off-ramps operate through centralized exchanges, peer-to-peer platforms, or crypto debit cards that automatically convert digital assets into fiat currency at the point of sale. This process makes cryptocurrencies more practical for daily use, enabling real-world purchases, payments, and withdrawals.

How Fiat Off-Ramps Work

The off-ramping process generally involves a few simple steps:

1. Transfer crypto from your wallet to an exchange or service that supports fiat withdrawals.
2. Sell or convert your chosen cryptocurrency into your preferred fiat currency.
3. Withdraw funds to your linked bank account or payment method (for example, a debit card).

Processing times vary by provider and banking network, usually ranging from a few minutes to a few business days. Many platforms require identity verification to meet anti-fraud and regulatory standards. Key factors influencing the experience include withdrawal limits, transaction fees, and the fiat currencies supported.

The Advantages and Disadvantages of Fiat Off-Ramps

The main advantage of off-ramping is, of course, liquidity: the ability to convert digital currencies into usable cash when needed. Whether users want to pay bills, make everyday purchases, or take profits from crypto investments, off-ramping makes that possible.

It also provides flexibility in managing risk. When markets are volatile, selling crypto for fiat can help stabilize personal finances. Additionally, off-ramping plays a role in promoting transparency and regulatory compliance by ensuring that transactions are traceable and aligned with local laws.

Off-ramping faces similar challenges to on-ramping, including variable fees, conversion delays, and regulatory hurdles. Some banks restrict transactions related to cryptocurrency exchanges, causing delays or rejections. Others may require additional verification steps for large transfers.

Users should check whether a platform offers low-cost conversions, and has clear customer support channels. As always, verifying a provider’s regulatory compliance and reputation helps avoid potential issues.

The Connection Between Fiat On-Ramps and Off-Ramps

Together, fiat on-ramps and off-ramps form the foundation of the crypto-fiat ecosystem. They create a two-way bridge that connects digital currencies to the traditional financial system, improving liquidity, usability, and accessibility.

Seamless on-ramping attracts new users by making it easy to enter the market, while efficient off-ramping gives confidence that assets can be converted back to fiat when needed. This balance is what enables broader adoption of cryptocurrencies across businesses, consumers, and financial services.

Platforms like Tap exemplify this connection by offering both on-ramp and off-ramp capabilities through secure infrastructure, compliance with financial regulations, and support for multiple digital assets. Users can buy, sell, and transfer between crypto and fiat currencies using a single account, without needing multiple intermediaries.

Security and Best Practices

Security should always come first when using any financial platform. Here are a few best practices:

• Verify regulation. Check whether the platform follows financial authority standards and offers transparent reporting.
• Use two-factor authentication. This adds an extra layer of protection to your account.
• Confirm wallet and withdrawal addresses. Mistyped addresses are one of the most common causes of lost funds.
• Start with small transactions. Test the service before transferring large amounts.
• Keep records. Store transaction data securely for personal reference or tax reporting.

Following these measures helps maintain data integrity and protects against common cyber risks in digital finance.

Common Challenges and How to Overcome Them

Here are a few recurring challenges users may face:

• Banking restrictions on crypto-related transactions.
  
  
• High conversion fees that can reduce profit margins.
  
  
• Processing delays during peak trading hours.
  
  
• Strict verification procedures that slow onboarding.
  
  

The best way to overcome these obstacles is to work with reputable, user-friendly well-established providers that maintain transparent communication and have strong partnerships with trusted financial institutions, such as Tap.

In Conclusion

Now that we've explored what a fiat on-ramp and off-ramp are, it becomes clear how essential it is for cryptocurrency users and investors to understand these processes as they provide liquidity, investment opportunities, and the ability to realize profits (in fiat currency).

Looking ahead, the future of fiat on-ramps and off-ramps appears promising. As the cryptocurrency landscape continues to evolve, we can anticipate exciting advancements in these gateways, making crypto assets more accessible and further driving their adoption into mainstream use.

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Arbitrage är en alternativ handelsstrategi där investerare köper en tillgång på en marknadsplats och säljer den på en annan – till ett högre pris. Strategin används inom allt från aktiemarknader som New York Stock Exchange till råvaruhandel och kryptovalutor. Rätt genomförd kan det vara en lukrativ metod, men som alltid finns det risker att känna till.

Här går vi igenom vad arbitrage innebär, hur det fungerar i praktiken och vilka risker du bör ha koll på.

Vad är arbitrage?

Arbitrage innebär att utnyttja prisskillnader på samma tillgång mellan olika marknader genom att köpa billigt på en plats och sälja dyrare på en annan – samtidigt. Prisskillnaderna uppstår på grund av ineffektivitet i marknaderna, något som arbitragehandlare både drar nytta av och indirekt hjälper till att rätta till.

De som ägnar sig åt detta kallas arbitrageörer och fokuserar ofta på ett specifikt tillgångsslag eller geografiskt område. Ett klassiskt exempel är att köpa en aktie på Londonbörsen och sälja den samtidigt på New Yorkbörsen – och på så sätt tjäna på prisskillnaden.

Även om det kan låta enkelt krävs både marknadskännedom och förmågan att snabbt identifiera möjligheter. Det är en avancerad metod som lämpar sig bäst för mer erfarna handlare.

Vilka risker finns det?

Arbitragehandel kan verka riskfri på ytan, men det finns flera saker som kan gå fel om man inte har full förståelse för hur marknaderna fungerar. Här är några av de vanligaste riskerna:

Felbedömningar i prisskillnader

Eftersom hela affären bygger på att upptäcka rätt prisskillnad i rätt ögonblick kan minsta felsteg göra att du blir sittande med en tillgång som inte längre går att sälja med vinst. Därför behöver arbitrageörer vara pålästa och följa nyhetsflödet noga.

Avgifter och växlingskurser

Avgifter från mäklare, transaktionskostnader och valutaväxlingar kan äta upp vinsten från en arbitrageaffär. Det är viktigt att räkna in dessa kostnader i förväg för att förstå om affären är värd att genomföra.

Timing

Timing är avgörande i arbitragehandel. Om du inte agerar tillräckligt snabbt kan prisskillnaden försvinna innan affären är genomförd. Det kräver både snabbhet och precision.

Hur börjar man med arbitrage?

Eftersom arbitrage ofta innebär handel mellan internationella marknader är första steget att övervaka och analysera dem noggrant. Du behöver hålla utkik efter tillfälliga prisskillnader och vara redo att agera direkt – köpa billigt på en marknad och samtidigt sälja på en annan.

Ett exempel på arbitrage

Låt oss säga att du följer ett bilföretags aktie som handlas på både Londonbörsen (LSE) och Tokyobörsen (TYO). Vid ett tillfälle ser du att aktien kostar motsvarande 100 USD i London och 75 USD i Tokyo.

Du köper aktien i Tokyo till det lägre priset och säljer den i London till det högre. Prisskillnaden – i detta fall 25 USD – blir din potentiella vinst per aktie.

Men i verkligheten tillkommer valutaskillnader och avgifter, vilket påverkar den faktiska vinsten. Ju fler aktier du hanterar, desto större blir möjligheterna – men även riskerna.

Är arbitragehandel något för mig?

Det finns potential för vinst, men det kräver tid, analys och noggranna beräkningar. Arbitrage är ingen genväg till snabba pengar – det är en strategi som kräver tålamod och förståelse. Om du är villig att lära dig och jobba aktivt med din analys kan det vara värt att utforska.

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In this article, we delve into the distinction between revenue and profit, essential for businesses aiming to thrive financially. In a nutshell, revenue represents the total income generated from core operations, while profit is what remains after deducting all expenses. Join us as we explore the nuances between these two crucial concepts and their significance in business success.

What is revenue?

Revenue represents the total income earned by a business through its core operations, such as sales of goods or services. It can also be referred to as the top line of an income statement. It's essential for covering expenses, investing in growth, and generating profits.

Revenue comes from various sources like product sales, service fees, subscriptions, licensing, and advertising. Understanding and managing revenue streams are crucial for sustaining operations, attracting investors, and ensuring long-term viability in competitive markets. Thus, revenue serves as a vital performance indicator for businesses of all sizes and industries.

What is profit?

Profit refers to the financial gain a business achieves after deducting all expenses from its total revenue. On an income statement, profit is typically known as net income, however, the term "bottom line" is more commonly used.  Profits appear on an organisation's income statement in a variety of ways and are used for various purposes and are a key metric indicating a company's financial health and efficiency.

There are two main types of profit:

Gross profit

Gross profit equals revenue minus the cost of goods sold, which consists of the direct material and labour expenses related to creating a company's products.

Operating profit

Operating profit equals gross profit minus other business expenses that are associated with running the company, such as rent, utilities, and payroll.

Essentially, profit is calculated by subtracting total expenses from total revenue. It's vital for business sustainability, expansion, and rewarding stakeholders and accurately measuring and maximising profit margins is essential for achieving long-term success and competitiveness in the market.

Revenue vs profit

When people refer to a company's profit, they are usually referring to the net income, which is what's left after expenses. It is possible for a company to make money but still have a net loss.

In an example below illustrating the importance of understanding revenue and profit, say a company producing light bulbs makes $10 million in the income generated. This sounds great, however, if the company's core business operations and debt add up to $12 million, the company is making a loss. Let's take a look at this example in greater detail below:

Business revenue or Total Net Sales: $10 million

Gross Profit: $4 million (total revenue of $10 million minus COGS of $6 million)

Operating Profit: $2 million (gross profit minus other business expenses such as rent, utilities, and payroll)

Profit or Net income: –$2 million (illustrating that the company is making a loss)

Profit will always be lower than revenue as this amount is determined after deducting all the operating and other costs. 

A look at expenses

Operating expenses, including salaries, rent, marketing, direct costs, and utilities, which are necessary for day-to-day operations, and non-operating expenses, like interest payments or one-time costs, can impact profitability differently. By adequately controlling all expenses, businesses can maximise profit margins, reinvest in growth initiatives, and provide returns to stakeholders.

Overspending on unnecessary costs or failing to budget properly can significantly reduce profit margins, hampering long-term success. Therefore, monitoring and optimising expenses are integral parts of financial management strategies aimed at ensuring profitability and competitiveness in the market. With an effective strategy in place to measure and manage expenses, the price of goods and total sales will hopefully increase. 

The importance of financial metrics

Financial metrics encompass a range of indicators used to assess a company's performance, including revenue growth rate, profit margin, and return on investment (ROI). These metrics provide insights into the effectiveness of business operations, helping organisations gauge their financial health and make informed decisions.

For instance, the revenue growth rate indicates the pace at which a company's sales are increasing over time, while the profit margin measures the proportion of revenue that translates into profit. Additionally, ROI assesses the efficiency of investments by comparing the gains or losses relative to the initial investment, aiding businesses in evaluating their investment strategies and maximising returns.

How to measure business performance

Measuring how well a business is doing means looking at both its revenue and profit. Revenue is all the money a business makes from selling things, while profit is what's left after taking away all the costs. By finding ways to make more money and spend less, a business can increase its financial health. Keeping an eye on important numbers like sales growth and profit margins helps a business see where it's doing well and where it can improve. This helps the business stay strong and competitive in the long run.

In conclusion

Companies base their success on two very important metrics: revenue and profit. While revenue is referred to as the top line, a company's profit is what really matters and is referred to as the bottom line.

It is crucial for investors to take both revenue and profit into account when making investment decisions, and to review the company's income statement in order to get a full view of the company's financial health.

In conclusion, revenue is the income a company makes without factoring in expenses such as debts, taxes, and other business costs. Profit, on the other hand, factors in all company expenses and operating costs.

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When trading, market liquidity offers a measure of how quickly an asset can be converted to cash. The more market liquidity an asset has, the more easily it can be traded for cash. This comes into play when looking at its price point: the more tradable an asset, the less impact the trade will have on the asset's price. 

Other factors to look out for include trading volume, technical indicators, and volatility. Liquidity is important for everything across the stock market and digital asset market to a company's liquidity, with liquid assets always being preferable. Let's first take a look at what liquidity is, the most liquid assets and the key takeaways liquidity refers to.

What does liquidity mean, exactly?

In its simplest form, liquidity looks at how easily and quickly an asset can be converted to another asset (bought or sold) without affecting its price. Liquidity can also sometimes be referred to as a cash ratio or marketable securities. A liquidity ratio helps investors determine whether something is a liquid asset or not and how easy it will be to convert assets.

When an asset has good market liquidity, this means that it can easily be traded for cash or other assets with no effect on the asset's market price. Referred to as liquid assets, these would include currencies, marketable securities, and money market instruments. This provides peace of mind to investors that have other financial obligations.

On the other hand, low liquidity means that the asset cannot be as easily bought or sold and any transaction that takes place will affect the asset's trading price. Real estate, rare items, and exotic cars present examples of illiquid assets, meaning that they may take longer to be sold, and not necessarily at the price the seller is expecting to receive. 

What is the most liquid asset?

In terms of financial liquidity, cash is considered to be the most liquid asset.

Think of liquidity as a spectrum - on the one hand, you have cash (highly liquid) and on the other, you have rare items. Consider where on the spectrum an asset might fall to get an idea of its liquidity. 

Types of liquidity

In a general sense, there are two types of liquidity: market liquidity and accounting liquidity used to measure the current ratio of an asset or company.

What is market liquidity?

The first of the two types of liquidity is market liquidity, defined as the ease with which a financial asset may be bought and sold at fair prices. These are the prices that are most similar to the assets' actual value, known as their intrinsic value. 

Intrinsic value in this case refers to the lowest price a seller is willing to accept (ask) and the highest price a buyer is willing to pay for it (bid). The bid-ask spread, also known as the trading spread, is the difference between these two values. The lower the bid-ask, the greater the liquid asset.

What is accounting liquidity?

Accounting liquidity describes a company's ability to pay its short-term debts and liabilities with its current assets and cash flow. In other words, it reflects the company's financial health: the higher the company's accounting liquidity the more liquid the company's capital.

Most commonly, you'll hear accounting liquidity mentioned in relation to businesses and their balance sheet. This has less to do with liquid assets and more to do with businesses, and the company's financial health, as a whole.

What is a bid-ask spread?

The bid-ask spread refers to the difference between the highest bid and the lowest ask price. As you would expect, a low bid-ask spread is preferred in liquid marketplaces. It implies that the market has sufficient liquidity since traders continuously bring the high and low prices back into balance.

A wide bid-ask spread, on the other hand, generally indicates illiquidity in an asset and a substantial gap between what buyers are willing to pay and what sellers are willing to accept. 

The bid-ask spread plays a valuable role for arbitrage traders as they attempt to take advantage of minor disparities in the bid-ask spread over and over again.

While they make money, their activities help to support the market as they reduce the bid-ask spread, and other traders will have better trade execution as a result of their activity.

Arbitrage traders also make sure that the same market pairs do not have significant price disparities on various exchanges. Have you ever seen how the Bitcoin price is roughly similar across the most liquid markets? This is due in large part to arbitrage traders who exploit small variances between prices on different exchanges to profit.

Why liquidity plays an important role in the markets

Bigger stocks and digital currencies tend to have more liquid markets due to their higher trading volume and market efficiency. 

The amount of money traded per day, otherwise known as liquidity, varies depending on the market. For example, some markets may only have a few thousand dollars of trading volume while others have billions.

Assets from large companies or establishments don't usually have issues with liquidity since there are many buyers and sellers in their respective markets. However, this isn't the case for less traded assets which often lack significant liquidity.

When building your portfolio ensure that you incorporate (or stick to) liquid markets so that you can always know that should you wish to liquidate the asset you will get a good price. Sometimes with smaller assets, you might not be able to exit the market at your desired price leaving you with an invaluable asset or one traded at a significantly lower price.

This is known as slippage and can result from trying to fill a large order in an illiquid market. Slippage is the difference between the price you intended to sell at and at what price your trade is actually executed. 

High slippage indicates that your transaction was completed at a significantly different price than you intended. This usually occurs because there aren't enough orders in the order book near to where you wanted to execute them. This can be avoided by only using limit orders, but this runs the risk that your order may not be filled.

The market conditions significantly affect liquidity. For example, in a financial crisis, different traders might respond by either selling their assets or withdrawing cash.

Final thoughts

When it comes to the markets, liquidity refers to the ease of trading in a market. Traders often favor liquid markets because they provide convenient access for entering and exiting positions. The level of liquidity can influence the efficiency and effectiveness of trading strategies. Depending on your preferences, you might consider including highly liquid assets in your portfolio, which can have benefits in terms of flexibility.

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