#Liquidity101 Liquidity refers to the ability to buy or sell an asset quickly and at a fair price. In trading, liquidity is crucial as it determines how easily a trader can enter or exit a position. High liquidity means many buyers and sellers, tight bid-ask spreads, and minimal price impact. Low liquidity can lead to large price swings and difficulty executing trades. Liquidity providers, such as market makers, add liquidity to markets by buying and selling assets. In cryptocurrency markets, liquidity pools and automated market makers (AMMs) play a key role in providing liquidity. Sufficient liquidity ensures smooth trading.