#Liquidity101

Liquidity refers to how easily you can buy or sell an asset without changing its price too much. A liquid market has lots of buyers and sellers, so trades happen quickly and at expected prices.

🔍 Types of Liquidity

1.High Liquidity

👉Many buyers and sellers.

👉Tight bid-ask spreads.

👉Fast order execution with minimal slippage.

2.Low Liquidity

👉Fewer buyers and sellers.

👉 Wider bid-ask spreads.

👉 Orders may take longer to fill or cause noticeable price movement

💡 How Liquidity Affects Price Execution

👉 In a high liquidity market, orders fill quickly at expected prices with little slippage. The spread between buying and selling prices is tight (e.g., $100 vs. $100.01), and large trades don’t move the price much.

👉In a low liquidity market, orders fill slowly and may be only partially filled. Slippage is high, spreads are wide (e.g., $100 vs. $100.50), and big trades can cause big price changes.

📈 Example in Crypto; You're selling 10 BTC

👉On a high-liquidity exchange, they might all fill at $65,000.

👉On a low-liquidity exchange, only a few may fill at $65,000, the rest at descending prices (e.g., $64,900, $64,700), causing slippage.

💥Before trading, check liquidity by examining volume, order book depth, and tight bid-ask spreads. On DEXs, review liquidity pools. Trade on major exchanges during active hours for better execution.

💥Use limit orders, trade in high liquidity, avoid volatile times, split large orders, and set slippage limits to reduce slippage.