#Liquidity101 Liquidity is the ability of an asset to be bought or sold in the market without causing a significant change in its price. In financial markets, especially in cryptocurrency or derivatives trading, liquidity is key to executing operations efficiently. When liquidity is low, orders may take longer to fill, experience slippage, or be executed at less favorable prices, directly affecting profitability, especially during times of high volatility.

Before opening a position, I assess liquidity by observing trading volume, order book depth, and the spread between the buy and sell price. I also check for large orders that could absorb mine and cause sharp price movements. In markets with derivatives, such as perpetual futures, I also consider how much open activity (open interest) there is and how stable the funding rate is, as both can provide signals.