#Liquidity101 # Liquidity 101 💧📈

**Liquidity** is a foundational concept in trading and investing. It affects **how easily you can buy or sell** assets, and **how much it costs** to do so.

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## 💡 What is Liquidity?

> **Liquidity** refers to how easily an asset can be converted into cash **without significantly affecting its price**.

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## 🔄 Two Main Types:

### 1. **Market Liquidity**

* Describes how easy it is to **buy or sell an asset** in the market.

* **High liquidity** = Many buyers and sellers, tight spreads, fast execution.

* **Low liquidity** = Fewer participants, wide spreads, potential slippage.

### 2. **Asset Liquidity**

* Describes how easily a **specific asset** can be sold for cash.

* Example:

* **Cash** = Most liquid asset.

* **Real estate or art** = Less liquid, takes time to sell.

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## 📊 Liquidity in Trading (Key Concepts)

| Term | Meaning |

| ------------- | ---------------------------------------------------- |

| **Bid Price** | Highest price a buyer is willing to pay |

| **Ask Price** | Lowest price a seller is willing to accept |

| **Spread** | Difference between bid and ask (tight = liquid) |

| **Volume** | Number of assets traded (more = usually more liquid) |

| **Slippage** | Price difference between expected and executed trade |

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## 🧠 Why Liquidity Matters

### ✅ Pros of High Liquidity:

* Faster trades

* Better price execution

* Lower spreads

* More stable prices

### ❌ Risks of Low Liquidity:

* Harder to enter/exit trades

* Price volatility (large orders move market)

* Increased trading costs

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## 🏦 Liquidity in CEX vs DEX

| Feature | CEX (Centralized) | DEX (Decentralized) |

| Liquidity Source | Order books, centralized pools | AMMs or peer-to-peer liquidity |

| Typically Higher | Yes (especially top CEXs) | Depends on DEX and token |