Liquidity refers to how easily an asset can be bought or sold in the market without significantly impacting its price. High liquidity leads to smooth price execution with minimal fluctuations, while low liquidity can cause price volatility and execution delays. To evaluate liquidity before entering a position, traders analyze bid-ask spreads, trading volume, and market depth. A narrow spread and high volume indicate strong liquidity. To reduce slippage, traders use limit orders instead of market orders, trade during peak liquidity hours, and choose assets with deep order books. Additionally, breaking large orders into smaller ones minimizes impact on price movement. These strategies help achieve precise entry and exit points, ensuring efficient trade execution while avoiding excessive costs.#Liquidity101