#Liquidity101
💧 LIQUIDITY 101 – INTRODUCTION TO LIQUIDITY
📌 What is Liquidity?
Liquidity is a measure of how easily and quickly you can buy or sell an asset without causing significant price changes.
> 🔄 The higher the liquidity = the easier the transactions without disrupting the market price.
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🎯 Simple Example:
Imagine you want to sell 1 Bitcoin:
If many people want to buy → you can sell immediately at market price → high liquidity.
If few people want to buy → you have to lower the price to sell → low liquidity.
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📊 Types of Liquidity:
1. Asset Liquidity
How quickly an asset can be converted to cash without much loss.
Example:
💵 Very liquid: Cash, BTC, ETH, large stocks.
🏠 Less liquid: Real estate, art, small altcoins.
2. Market Liquidity
Measures how active the market is for a particular asset.
Viewed from:
Daily trading volume.
Number of buy and sell orders in the order book.
Spread (the difference between buy and sell prices).
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📈 High vs Low Liquidity:
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🔍 Why is Liquidity Important?
✅ Entering and exiting the market easily without causing drastic price changes.
✅ Reduces losses due to slippage.
✅ More convenient for large traders.
✅ Indicates market confidence and activity.
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🔁 Liquidity in CEX vs DEX
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💡 About Liquidity Pool (in DEX)
In DEXs like Uniswap or PancakeSwap:
Users deposit tokens into the pool (for example ETH/US
