Have you experienced this? 👇
- you set a limit order, the price reaches the limit, but the purchase/sale does not occur 🤷🏻♀️😭
- you sell at market price and see that the amount was split into several parts, these parts were sold at different prices, worse than you wanted 😭
- a stop-loss was triggered when it shouldn't have been, due to price slippage 😭
Why does this happen?
This is all about liquidity, or rather the lack of liquidity.
You see a beautiful chart, see opportunities. But in reality, you cannot buy/sell at the desired price. You can get stuck with an illiquid token for a long time, fall into a trap.
How to avoid this, basic check:
1. Check the trading volume over the last 24 hours. If the volume is less than $1 million, there is no liquidity there. For example, top coins BTC, ETH, SOL have volumes in the billions of dollars.
2. Check the order book: the price steps should be without gaps. There should be many orders at each price, especially near the spread.
Here is an example of an order book 'with gaps'
There are orders at the price of 0.1454, but none at 0.1455-0.1459, here there will be slippage or an unfulfilled order.
3. Also look at the total amount of orders in the order book. For example, you need to sell $1000, but there are only $300 available at that price in the order book. The limit order will not be fulfilled, the market order will be broken: you will sell $300 at the desired price, the rest at a worse price.
4. Pay attention to the spread - the gap in the order book between the first selling price and the first buying price. For example, the current price of the coin is $12, and you want to buy. But there is a spread, and the first seller wants to sell at $12.5. If you buy at market price, the price will slip, and you will buy at $12.5 instead of $12.
Conclusion: check liquidity if you want to trade non-top coins.
Look at the volumes of top coins, there you don't need to worry about liquidity 👇
