#Liquidity101

Let's take a closer look at the reasons why liquidity is essential in the cryptocurrency market. Here’s what it does exactly:

It maintains price stability

A liquid market is characterized by high trading activity, which brings balance between supply and demand. Thus, sharp price fluctuations are reduced.

It clarifies price determination

Thanks to stability, a liquid market provides the most accurate valuation. This helps in planning a personal investment strategy.

It prevents price manipulation

A liquid market is less susceptible to price control and manipulation by dishonest participants. This increases safety when participating in the market.

Business activity analysis

Liquidity indicates an increase in the number of buy and sell orders, allowing traders to understand market forces. Because of this, investors can better analyze the market and make forecasts.

It makes trading more efficient

The more liquidity there is, the faster the transactions are, preventing large price fluctuations. Moreover, the difference between the buying and selling price (also known as the spread) is smaller, reducing transaction costs and making trading more profitable.