Liquidity refers to the ease with which a crypto asset can be bought or sold without causing a significant change in its market price. It's a key factor in trading, as it affects the speed, price, and ease of executing trades.
Assets with high liquidity can be bought and sold in large amounts without significantly affecting the market price. These assets have deep order books, allowing for purchases of thousands, or even millions of dollars worth of an asset without shifting the price significantly.
Assets with low liquidity are difficult to buy or sell in large amounts without causing a significant change in the market price. They usually have sparse order books, so attempting to sell or buy any substantial amounts will cause significant changes to the market price and market cap.
Liquidity is crucial for traders and investors as it affects the stability and predictability of prices. High liquidity generally leads to smaller spreads and less price volatility, while low liquidity can lead to larger spreads and more price volatility.
"In a highly liquid market, a trader can quickly enter or exit positions without causing a drastic change in the asset's price."
"In a low liquidity market, a large sell order can cause a significant drop in the market price, potentially triggering a sell-off."
* All terms and definitions may update as the Cryptionary improves.
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