#Liquidity101

💧 #Liquidity101 | What is liquidity and why is it considered the backbone of any market?

In the trading world, we often hear the word "liquidity" but...

what does it actually mean? And why should every trader or investor care about it?

🔹 What is liquidity?

Liquidity is the ability of an asset to be converted into cash easily and without a significant loss in value.

In financial markets, liquidity means the availability of buyers and sellers in abundance, which makes entering and exiting the market faster and less costly.

🔹 A simple example:

A currency like BTC or ETH is highly liquid → you can sell a large amount of it without affecting the price.

A small or "Low Cap" currency → selling a small amount may cause sharp price fluctuations.

🔹 Types of liquidity:

1. Market Liquidity: The ease of executing trades in the market.

2. Funding Liquidity: The ability of individuals or institutions to meet their financial obligations.

🔹 Why is liquidity important?

✅ Reduces the "spread" (the difference between the buying and selling price).

✅ Protects against unjustified sharp fluctuations.

✅ Helps execute buy and sell orders quickly and accurately.

✅ Provides greater confidence for investors.

🔹 How to measure liquidity?

Daily trading volume.

Depth of the Order Book.

The differences between supply and demand.

🔹 Information for beginners:

Don't be attracted to a project just because of its idea.

First, check its liquidity!

Weak liquidity means a higher risk in exiting the trade.