The liquidity of the cryptocurrency market ensures that the buy/sell transaction will be profitable and fast. We will tell you about liquidity and its advantages, as well as how to calculate it and what risks to take into account.
What is cryptocurrency liquidity?
Liquidity is the ability to buy or sell a cryptocurrency without causing serious fluctuations in its rate in the market.
For example, John wants to sell 100 units of cryptocurrency. If the market is liquid, John will do it quickly and profitably.
Why is cryptocurrency liquidity important?
Liquidity guarantees a good deal for both buyer and seller. It also provides advantages:
🔷 Fair prices. There are a lot of participants in such a market who constantly balance the price
🔷 Stable market. A liquid market is hard to destabilize with a big deal.
🔷 Speed. Orders are executed quickly, as there is always someone to buy them.
🔷 Technical analysis. It is easier to make predictions about how the cryptocurrency market will change.
How to calculate the liquidity of the crypto market?
Pay attention to:
🔷 Trading volume for the last 24 hours. Reflected as a percentage. A high volume indicates that the market is actively trading.
🔷 The volume of the order list. Reflect the prices at which orders are placed.
🔷 Difference in buy/sell prices. This is the amount by which the bid price exceeds the bid price. The spread between these prices should be low, as this will mean that the price is in equilibrium.
Risks and Benefits of Low Liquidity
An illiquid market is a dangerous game. It can bring risks, for example: price slippage due to market volatility; falling prices for cryptocurrency; long waiting time for an order due to the lack of market participants.
But a trader can take advantage of the volatile market situation and win.
When order prices go down, a market participant has a chance to buy the asset at a discount.
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