#Liquidity101

In the world of crypto, liquidity is key. It's the ease with which you can buy or sell an asset without affecting its price. High liquidity is a sign of a healthy, stable market.

Role and Impact of Liquidity

High liquidity leads to more stable prices, faster trade execution, and lower transaction costs due to tighter bid-ask spreads. A major impact of low liquidity is slippage, which is the difference between the expected price of a trade and the actual price at which it's executed. This often happens with large orders in thinly traded markets.

How to Evaluate Liquidity

Before trading, assess an asset's liquidity by checking a few key indicators:

24-Hour Trading Volume: High volume suggests strong liquidity.

Order Book Depth: A "deep" order book with many buy and sell orders near the current price indicates the market can absorb large trades.

Bid-Ask Spread: A narrow gap between the highest buy price and the lowest sell price signals a liquid market.