1. Facilitates Trade: High liquidity ensures that buyers can find sellers and vice versa, making it easier to trade assets. 2. Reduces Transaction Costs: With more participants, bid-ask spreads tend to be narrower, reducing the cost of trading. 3. Stabilizes Prices: Liquid markets are less prone to extreme price volatility, as there are sufficient buyers and sellers to absorb shocks. 4. Enhances Market Confidence: Investors are more likely to participate in markets where they can easily execute their trades, thus fostering greater market participation.