💧 What is liquidity in crypto?
If you trade crypto, liquidity is one of the most important yet underrated factors. Let's break it down in simple terms.
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🔹 What is liquidity?
Liquidity is the ability of an asset to be quickly bought or sold at a 'fair' price.
• High liquidity = low slippage, narrow spread, fast trades
• Low liquidity = a trade may 'get stuck' or be executed at an unfavorable price
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📊 Examples:
• Bitcoin, Ethereum — high liquidity: large volumes, narrow spread
• Small altcoins or meme tokens — low liquidity: often large spread, strong price fluctuations
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🔸 Why is this important?
1. 💸 Entry and exit price
• The lower the liquidity, the more you pay 'hidden fees' through slippage.
2. ⚠️ Pump/dump risk
• In illiquid coins, prices can be easily manipulated. One large order can crash the market.
3. 🔐 Project reliability
• Liquidity is an indirect indicator of confidence in a token. Low liquidity — low interest.
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🧠 How to check liquidity?
• Trading volume (24h) — the higher, the better
• Spread between buy and sell — the narrower, the better
• Order book depth — how many orders are on the buy/sell side
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📌 Conclusion:
Liquidity is like having doors in a building.
You can enter... but it's important to have the ability to exit quickly and safely.