Crypto glossary
Liquidity
Liquidity is how easily an asset can be bought or sold quickly without moving its price much; deep markets absorb large trades, while thin ones do not.
A market is liquid when many buyers and sellers are ready to trade near the current price. On an exchange that shows up as a deep order book and a narrow bid-ask spread; on a DEX, as a large liquidity pool. In an illiquid market, even a modest order can move the price sharply.
Bitcoin, ether and the major stablecoins are the most liquid crypto assets, while small tokens may trade on a single venue with little depth. Liquidity comes from market makers, liquidity providers in AMM pools and ordinary traders posting limit orders. Analysts track measures such as order book depth within 1% or 2% of the price, which tends to thin out at weekends and on holidays.
Liquidity can vanish in a crisis, turning a sell-off into a crash and leaving stop-loss orders filled at poor prices. Before trading a small token it is worth checking real depth, since reported volumes can be inflated by wash trading.
Example
Selling 1 million dollars of BTC on a major exchange might move the price by less than 0.1%, while selling 50,000 dollars of a small token on a thin pool could push it down 10% or more.
Related terms
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