#Liquidity101

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💧 What Is Liquidity?

Liquidity refers to how easily and quickly an asset can be bought or sold in the market without affecting its price too much.

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📊 Two Main Types of Liquidity

1. Market Liquidity

Refers to how easily an asset (like Bitcoin) can be traded.

High market liquidity = many buyers and sellers → tight spreads and fast execution.

Example: BTC has high liquidity on Binance and Coinbase; small-cap tokens may have low liquidity and large slippage.

2. Asset Liquidity

Refers to how easily a specific asset can be turned into cash.

Example: Cash = highly liquid; Real estate = illiquid.

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🔁 Key Liquidity Terms (Crypto Focus)

Term Meaning

Order Book List of buy/sell orders at different prices

Bid-Ask Spread Difference between the highest buyer and lowest seller price

Slippage Price movement between order placement and execution

Depth How much volume is available around current price without large swings

Liquidity Pools Smart contract–based reserves used for trading on DeFi platforms (e.g., Uniswap)

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📉 Why Liquidity Matters

Low liquidity = high slippage + unpredictable pricing

You may not be able to exit or enter positions at expected prices.

Large trades in illiquid markets can move prices sharply.

🔎 How to Measure Liquidity

1. Trading Volume: More volume = more liquidity.

2. Spread: Narrow spread = healthy liquidity.

3. Order Book Depth: More orders at each level = more stable prices.

> Pro Tip: On Binance or TradingView, check the “Depth Chart” to see buy/sell pressure visually.

🧠 Example (BTC vs. Small Token)

Token Liquidity Spread Slippage on $10K trade

BTC High 0.01% <0.1%

SHIBAxZ Low 5%+ 15–30%