Liquidity is a fundamental concept in trading and investing, yet it's often misunderstood. In simple terms, liquidity refers to how easily an asset can be bought or sold without significantly affecting its price. High liquidity means there are plenty of buyers and sellers, leading to tighter spreads and faster trades. Low liquidity, on the other hand, can cause slippage and volatility, especially during large trades. In crypto, liquidity is crucial for smooth market functioning—whether on centralized exchanges or decentralized platforms. Liquidity pools, market makers, and trading volume all influence it. Smart traders always consider liquidity before placing any large order.
