In the crypto world, liquidity is key. It is the ease with which you can buy or sell an asset without affecting its price. High liquidity is a sign of a healthy and stable market.
The Role and Impact of Liquidity
High liquidity results in more stable prices, faster trade execution, and lower transaction costs due to tighter bid-ask spreads. The main impact of low liquidity is slippage, which is the difference between the expected price of a trade and the actual price at execution.
How to Evaluate Liquidity
Before trading, evaluate the liquidity of an asset by checking several key indicators
-24 Hour Trading Volume: High volume indicates strong liquidity.
-Order Book Depth: A "deep" order book with many buy and sell orders near the current price indicates that the market can absorb large trades.