⚡️ What’s Liquidity in Markets?

So many subscribers ask this Question”What is Liquidity?”

HERE IS THE ANSWER

In short, liquidity is the speed at which market participants can execute orders by finding a willing buyer or seller. Liquidity is sort of the key to everything in the market -- it's the reason for price movement in the market.

Imagine this: Your car breaks down and need to sell your things to make some money. Among the things you're selling are rare Pokémon cards and the used mattress in your spare bedroom. All the Pokémon cards are brand new and in perfect condition, but the used mattress is old and uncomfortable. Which would end up selling faster?

The Pokémon cards, of course. You find out there’s a booming Pokémon scene in your city, you find a willing buyer almost immediately and you’re able to sell your cards for a near new price. This means Pokémon cards in your city are a liquid market with many participants.

On the other hand, unsurprisingly, nobody want to buy your old, used mattress. The used mattress market is illiquid and it takes a very long time to find a buyer for your mattress.

Now that we understand the difference between liquid and illiquid markets, we can apply this concept to the markets we're looking to trade.

Think of it like this:

The market is a game of Pac-Man, and Pac-Man is like the "market maker," or the entities/institutions that control price. Pac-Man wants to keep eating the little dots on the map to keep moving. The little dots he’s eating? that's liquidity!