#Liquidity101
Why is liquidity important in the cryptocurrency market?
Let's take a closer look at the reasons why liquidity is essential in the cryptocurrency market. Here's what it does exactly:
Maintains price stability
A liquid market features high trading activity, which brings balance between supply and demand. Consequently, sharp price fluctuations are reduced.
Clarifies price determination
Thanks to stability, a liquid market provides the most accurate valuation. This helps in planning your personal investment strategy.
Prevents price manipulation
A liquid market is less susceptible to price control and manipulation by unscrupulous participants. This increases safety when participating in the market.
Analyzes trading activity
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.
Makes trading more efficient
The higher the liquidity, the faster the transactions, preventing large price fluctuations. Furthermore, the difference between the buying and selling price (also known as the spread) is smaller, which reduces transaction costs, making trading more profitable.
