Friday, February 3, 2023

Liquidity in Cryptocurrency Markets Explained Simply!


Liquidity in cryptocurrency trading means the ability to convert a certain coin or token into cash or trade it for another coin or token without drastically affecting the price.

What affects liquidity?
1. Trading volume which measures how much of a specific coin or token was traded in the last 24 hours.
2. Depth of order book – how many units are willing to be bought and sold at specified prices in the order book – watch my order book tutorial video on bid, ask, and spread here:
3. The Spread not being too far apart.

If there is sufficient liquidity in the specific crypto market, those wishing to buy and those wishing to sell at this very moment will get to do so pretty much at the market price and with ease, if there is insufficient liquidity, those wishing to sell will receive substantially less than market price especially if it is a big order, and those wishing to buy will pay substantially more than the market price especially if it is a large buy order. The bigger the buy order, the higher their average purchase price will be, and likely the bigger the sell order the lower their average price will be respectively.

As adoption for crypto continues to increase and as more retail and smart money pile in, the more liquidity that will bring to the market. Day traders are also highly attracted to liquidity since they can enter and exit positions with ease, so expect them to jump in as well.

0:00 Intro
0:24 What is Liquidity
0:55 Order Book
1:35 Factors Affecting Liquidity
3:10 Examples
9:30 Closing

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***I am not a financial advisor or crypto advisor; this video is meant to be used for entertainment purposes only and represents only my personal opinions***

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