#Liquidity101

Liquidity in trading refers to how easily and quickly an asset can be bought or sold without affecting its price. High liquidity means there are many buyers and sellers, making it easy to enter or exit trades with minimal price changes. Low liquidity means fewer participants, leading to larger price swings and potential delays in trade execution.

For example, major cryptocurrencies like Bitcoin and Ethereum or stocks like Apple are highly liquid—trading them is fast and efficient. In contrast, lesser-known altcoins or small-cap stocks may be harder to trade quickly without impacting the price.

Liquidity is important because it affects:

Spread: The difference between buy and sell prices. Higher liquidity means tighter spreads.

Slippage: Price changes during a trade. Low liquidity increases slippage risk.

Volatility: Illiquid markets can be more volatile and unpredictable.

In decentralized finance (DeFi), liquidity is often provided by users in liquidity pools. Without enough liquidity, DEX trades can fail or cost more due to slippage.

Bottom line: Good liquidity means smoother, cheaper, and safer trading. Always check an asset’s liquidity before making a move.