💧 What Is Liquidity?
Liquidity refers to how easily and quickly an asset can be bought or sold without significantly affecting its price.
🏦 Types of Liquidity
1. Market Liquidity
How easy it is to trade an asset in a particular market.
High market liquidity = many buyers and sellers = fast trades with minimal price slippage.
✅ Example: BTC/USD pair has high liquidity.
❌ Example: A new altcoin on a small exchange has low liquidity.
2. Asset Liquidity
How easily an asset can be converted into cash.
Cash is the most liquid asset; real estate or rare NFTs are less liquid.
📊 Why Liquidity Matters
✅ Lower Slippage
You get prices closer to what you expected.
Low liquidity = higher risk of big price swings when you trade.
✅ Faster Execution
Trades get filled quickly, without delays.
✅ Better Price Stability
Liquid markets are harder to manipulate.
Illiquid markets can be volatile with sudden large moves.
✅ Easier Entry/Exit
You can enter or exit positions with minimal impact on price.