Liquidity premium

Hello! So, imagine you have a lemonade stand and you want to sell lemonade to your friends. Sometimes, your friends have a lot of money to buy lemonade and sometimes they don't have a lot of money. When your friends don't have a lot of money, they might have to wait until they get more money to buy your lemonade. This waiting is like a risk because you don't know if they will come back to buy your lemonade later.

Now, let's say that you want to sell your lemonade to people who aren't your friends. Some of these people might be very rich and can buy your lemonade anytime they want. These people don't have to wait to buy your lemonade because they have a lot of money. This means that they don't have the same risks as your friends who don't have a lot of money.

The difference between the risk of selling lemonade to your friends and selling lemonade to rich people is called the liquidity premium. The liquidity premium is the extra money that rich people are willing to pay for your lemonade because they don't have to wait to buy it. In other words, they are willing to pay more for the convenience of being able to buy your lemonade whenever they want, without any risk of waiting.

So, if you want to make more money from your lemonade stand, you might want to sell lemonade to rich people who are willing to pay a liquidity premium, rather than just selling to your friends who can't always buy your lemonade right away.