#Liquidity101

Liquidity is one of the most important—and often overlooked—concepts in trading and investing. In simple terms, liquidity refers to how easily an asset can be bought or sold without significantly affecting its price. The higher the liquidity, the faster and smoother trades can be executed, typically with tighter spreads and less slippage.

In crypto, assets like Bitcoin or Ethereum are considered highly liquid because they have large trading volumes and many active buyers and sellers. On the other hand, low-cap altcoins or newly launched tokens often suffer from low liquidity, which can lead to erratic price swings and difficulty exiting a position when needed.

Liquidity also varies between platforms. Centralized exchanges (CEXs) usually offer deeper liquidity than decentralized exchanges (DEXs), especially for major pairs. However, DEX liquidity is growing rapidly thanks to innovations like automated market makers (AMMs) and liquidity pools.

Understanding liquidity helps you trade smarter and manage risk more effectively.