#Liquidity101 – What is Liquidity and Why is it Important in Trading?

Liquidity is the ability to buy or sell an asset without causing a significant change in its price. In other words, a market with high liquidity is one where you can easily transact at a reasonable price, close to the current market price.

For example, Bitcoin and currency pairs like EUR/USD have high liquidity due to large trading volumes and many participants. In contrast, a newly launched token or a small company stock may have low liquidity, leading to difficulties in buying or selling quickly or being prone to slippage.

Liquidity directly affects:

Order execution speed: A high liquidity market helps orders to be executed quickly.

Bid-ask spread: Low liquidity results in a wide spread, increasing trading costs.

Exit ability: In adverse market conditions, low liquidity makes it difficult to exit a position in a timely manner.

When choosing assets to invest in or trade, always check the liquidity. It is a key factor in determining the safety and effectiveness of your trading strategy.

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