#Liquidity101

💧 Understanding Liquidity in Cryptocurrency

Liquidity in cryptocurrency refers to how quickly and easily a digital asset can be bought or sold without causing significant price changes. High liquidity means a crypto asset (like BTC or ETH) has a large number of active buyers and sellers, enabling smooth and fast transactions with minimal slippage (price movement during a trade).

Liquidity is essential for stable prices, efficient trading, and a healthy market. It allows investors to enter or exit positions without delay or major losses.

On centralized exchanges (CEXs), liquidity comes from order books filled by users. On decentralized exchanges (DEXs), it comes from liquidity pools, where users lock tokens to enable peer-to-peer trading.

Low liquidity can result in high volatility, wider spreads, and difficulty executing trades. That’s why traders often prefer pairs and platforms with deep liquidity.

Whether you're a beginner or a pro, understanding liquidity helps you trade smarter and manage risk better.