The 788 rule is a term commonly associated with cryptocurrency arbitrage trading. It refers to a simple arbitrage strategy where traders aim to exploit price differences between different exchanges or markets.
The "788" in this context doesn't refer to a specific technical rule but rather serves as a mnemonic for the steps in the process. The goal is to buy low on one platform and sell high on another to make a profit.
Here’s a breakdown of how the 788 rule generally works:
Buy (7): Purchase a cryptocurrency on an exchange where it is priced lower compared to others. This is often done by scanning multiple exchanges for price discrepancies.
Transfer (8): Move the cryptocurrency to another exchange where the price is higher. Since transfers take time and might involve fees, this step needs to be done carefully to avoid delays and high costs.
Sell (8): Sell the cryptocurrency on the second exchange at a higher price, thereby locking in a profit from the price difference.
**Liquidity** is an important concept in the world of cryptocurrency. It refers to how easily an asset, such as a cryptocurrency, can be bought or sold in the market without affecting its price.
Here’s a simple breakdown of how liquidity works in crypto:
# 1. **What is Liquidity?** Liquidity is essentially how quickly and easily you can convert an asset into cash or another cryptocurrency. In traditional finance, this concept applies to things like stocks or real estate. In crypto, it’s about how easily you can trade your digital assets, like Bitcoin or Ethereum, on an exchange.
# 2. **Why is Liquidity Important?** - **Faster Transactions**: High liquidity means that there are lots of buyers and sellers in the market. This allows you to make transactions quickly.
- **Stable Prices**: In a liquid market, prices are more stable. This is because large buy or sell orders don’t drastically change the price of the asset.
- **Better Trading Conditions**: When liquidity is high, traders get better prices and smaller spreads (the difference between the buying and selling price).
# 3. **How is Liquidity Measured?** - **Trading Volume**: This is one of the main indicators of liquidity. The higher the trading volume of a cryptocurrency, the more liquid it is.
- **Market Depth**: This refers to the size of buy and sell orders available at different price levels. A deep market with many orders close to the current price is considered more liquid.
#### 4. **What Affects Liquidity in Crypto?** - **Exchanges**: Major exchanges like Binance or Coinbase usually have higher liquidity due to a large number of users. Smaller, less-known exchanges often have lower liquidity.
- **Adoption**: Cryptocurrencies that are more widely adopted, like Bitcoin and Ethereum, have higher liquidity because more people are buying, selling, and using them.
- **Market Sentiment**: During market booms, liquidity tends to increase as more people enter the market. During crashes or downturns, liquidity can dry up.