Liquidity is the ability of the market to absorb large orders without significant price changes. It depends on the number of participants, trading volumes, and available buy and sell orders.
How to assess liquidity before entering a position?
1️⃣ Trading volume – a high volume means that the asset is in demand, and its price changes smoothly.
2️⃣ Bid-ask spread – a narrow spread signals high liquidity.
3️⃣ Market depth – analyzing the order book shows how quickly a large order can be executed without a strong price movement.
4️⃣ Timeframe – liquidity changes depending on the time of day and market conditions.
Strategies to reduce slippage:
✅ Using limit orders – helps avoid buying/selling at an undesirable price.
✅ Splitting large orders – gradually entering a position instead of a one-time trade reduces the likelihood of sharp price changes.
✅ Choosing liquid instruments – popular assets with high turnover ensure accurate execution.
✅ Trading during active hours – trades during periods of high activity reduce the impact of slippage.
