#Liquidity101

Liquidity refers to how easily an asset can be bought or sold without significantly affecting its price. In highly liquid markets, large trades can be executed quickly at expected prices. However, low liquidity can lead to slippage, where the actual trade price differs from the expected price, or even failed trades when there aren't enough buyers or sellers to fulfill an order. This is especially problematic in volatile markets where prices can fluctuate rapidly.

To evaluate liquidity, check order book depth, which shows the number of buy and sell orders at various price levels. A deeper order book usually indicates higher liquidity. Additionally, consider trading volume, as higher volume typically correlates with better liquidity.

To reduce slippage, limit orders are effective, as they ensure execution only at a specified price. Trading during peak hours, when market activity is highest, can also help. Always adjust your position sizes to match liquidity conditions to minimize potential execution issues.