#Liquidity101

Absolutely! Let’s dive into the basics of Liquidity with a quick and clear breakdown.

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💧 #Liquidity101

Liquidity refers to how easily and quickly an asset can be bought or sold without affecting its price significantly.

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🔹 Types of Liquidity

1. Market Liquidity

Definition: The ease of trading an asset (like stocks, crypto, forex) at stable prices.

High liquidity: Tight bid-ask spreads, fast order execution, low slippage.

Example: Apple stock (AAPL), BTC/USD.

Low liquidity: Wide spreads, hard to find buyers/sellers, more price impact.

Example: Penny stocks, obscure altcoins.

2. Asset Liquidity

Definition: How quickly an asset can be converted to cash.

Highly liquid assets: Cash, stocks, ETFs.

Illiquid assets: Real estate, collectibles, private equity.

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🔹 Key Liquidity Terms

Bid-Ask Spread:

Difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask).

Smaller spread = higher liquidity.

Slippage:

The difference between the expected price of a trade and the price at which it actually executes.

Happens often in low-liquidity markets.

Depth of Market (DOM):

Shows how many buy/sell orders are waiting