Glossary
What is liquidity?
In one sentence
Liquidity is how easily an asset can be bought or sold without moving its price. Low liquidity is what turns a paper gain into an unrealisable one.
A liquid market has enough buyers and sellers that reasonable-sized orders fill near the quoted price. An illiquid one does not: your order eats through the available offers and the price moves against you as you trade.
This is the mechanism behind a very common disappointment. A holding shows a large gain at the last traded price, but attempting to sell reveals there are almost no buyers at that level. The quoted price was real for a tiny trade and fictional for yours.
Liquidity also disappears exactly when it is most needed. During sharp falls, buyers withdraw, spreads widen and the exits narrow. An asset that traded smoothly in calm conditions can become effectively unsellable in a crash.
Before buying anything small, look at actual daily volume rather than market cap, and ask what selling your intended position would do to the price.
For example
Market cap tells you what an asset is theoretically worth; liquidity tells you what you could actually get for it.