#Liquidity101

Here’s a simple, clear breakdown of #Liquidity101 — what it is, why it matters, and how it affects your trades:

---

💧 What is Liquidity?

Liquidity refers to how quickly and easily an asset can be bought or sold without affecting its price.

---

🏦 Types of Liquidity

Type Definition Example

Market Liquidity How easily an asset can be traded on the market Bitcoin is highly liquid

Asset Liquidity How easily a specific asset can be converted to cash Stocks vs. real estate

Exchange Liquidity Depth and activity of the order book on an exchange Binance has high liquidity

---

🔍 How to Identify High Liquidity Assets

✅ Tight bid-ask spread

✅ High volume

✅ Deep order book

✅ Fast order execution

---

📉 Low Liquidity Risks

❌ Slippage – You get a worse price than expected

❌ Volatility – Price can swing more with large orders

❌ Delayed execution – Orders take longer to fill or may not fill at all

---

📊 Liquidity in Action

Example 1 (High Liquidity):

You place a $10,000 BTC order → filled instantly with little price impact.

Example 2 (Low Liquidity):

You place a $10,000 order for a small altcoin → price spikes or drops during the trade.

---

🧠 Why Liquidity Matters

For Traders For Investors

Better prices Easier entry/exit

Faster execution Lower transaction costs

Lower risk of slippage More predictable pricing

---