Topic: Liquidity (Read 193 times)

This is a good one and shows that you understand the context itself unlike many here. However, let me quickly add my additional inputs so that you or others can get the gist.

Liquidity is powerful, it's actually the creator of the market itself. And when you lose in trading, the broker/exchange at times can earn from all the losses if they are the liquidity provider. Or not, if they are not. In other words, at times, they are not the ones you lose the money to (they never provided the liquidity), this is unless the broker/exchange is a market maker which is a trading concept that is common with traditional market trading, and not crypto. If the broker/exchange is such that passes your deals directly into the raw market pool, then you lose the money to the liquidity pool and to the pocket of all those who are making the pool functional. This is what they make us believe in exchange and the reason why they do not like withdrawals when there is an issue that could cause panic withdrawals.

If this happens, it might be the end of the exchange since the liquidity would run dry through the exercise just like what happened with FTX even though they are faulty as well. This is just to establish that companies and their associates can provide liquidity, and so are the customers. And this determines how the brokerage/exchange would run, especially during the time they didn't plan for.

Very simply put, liquidity is the most important thing in trading. If there is not enough liquidity in the exchange, it is considered very bad for trading. The exchange needs liquidity so that traders can trade.

Liquidity in centralized exchanges is provided by the exchange itself and by traders on different coins pairs, while in decentralized exchanges anyone can participate in providing liquidity and take some profits for it.

In the context of bitcoin and cryptocurrency Liquidity is the ease with which bitcoin as an asset can be exchanged or converted into cash. It is a measure of how quickly you as a bitcoin investor or holder can retrieve money from your bitcoin investment. You can easily buy bitcoin and trade. Bitcoin as well as the cryptocurrency market can be said to have very strong liquidity. There is a high trading activity ongoing and a constant presence of willing investors.

Both of you are correct only that you are taking it too far towards the operational angle. Liquidity simply means cash/funds/assets and the availability and accessibility in businesses or in the industry at large.

It's actually what is needed for operations and to keep the businesses running, but not necessarily in that regard alone, it could be used to store value and must be readily available upon request. Some people call it capital base in this regard and it shows the actual strength and worth of an asset, company or the industry as a whole.

Link source:
https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/liquidity#:~:text=Liquidity%20definition,fast%20could%20you%20get%20it%3F


Unless am reading this wrong, you mean liquidity of Crypto assets?
If so, it's not different from what it means to non crypto HoDLer, converting whatever asset or landed property or gold to cash.
It means good for a crypto HoDLer, mostly one that has BTC investments and have concluded or nearing the conclusion of their DCA strategy to liquidate their assets that has been accumulated overtime, to cash.

Otherwise, the angle you are pointing at, is bleak. Please expansiate.

You should close this topic already OP, I have checked already and it seems that your questions already answered pretty much since it's not a complicated question anyway, you could've made it easier for yourself if you've just done a simple Google search or something but I understand if you don't, it's better that some people will tell you all about it in case there's difference. Also what tips are you exactly talking about? It's kind of general in your case because you don't ask about tips regards to something.

This topic is very related to economy and finance and once my professor taught this to me what I concluded from it is that when a person buys or sells a currency and go to another it's called liquidity.  This is a very very simple definition that I made from my studies and of course you are a newbie so this definition will make you more clear about liquidity.  There are many other definitions of liquidity and everyone is right. However for better understanding, I am giving you another definition which said that liquidity is the process when someone buys or sells a cryptocurrency without affecting its price significantly.  For more information I am giving you a link go and read it,  you will understand easily from.
https://www.bitcoin.com/get-started/what-is-liquidity/

Simple for us because we are not a newbie anymore but not for him. What you explained there are the ones who mainly work in a centralized exchange but I think on a decentralized one or those who are quick/instant exchange, it is possible to sell even without those sell orders because I haven't seen them being displayed.

But, I think it is possible to check if there is a liquidity in placed for some decentralized/instant exchanges. If there is then it is possible for us to trade here. I prefer this to be honest because they are less hassle and I can trade with lower amounts. For those who are serious traders, they mostly use centralized exchanges.

So, that's one of the important points that you have to pay attention to when choosing coin pairs and exchanges. You should not simply trust the liquidity information provided by an exchange without testing it with one small trade. This is usually done by shady exchanges to increase the visibility of newly listed coins.

There are different ways to describe liquidity. One way is there are liquid assets and illiquid assets. Basically stocks and cash are liquid assets because you can sell those quickly. What is not a liquid asset is stuff like real estate.

When it comes to crypto it matters how much liquidity there is. Usually on weekends there is less liquidity and more wicks. Same with low cap altcoins. That is why it’s easier for price to move on those pairs compared to say BTC or ETH.

I would just like to add: Trading low-liquidity crypto pairs on low-volume exchanges can lead to some advantages and profit potential if you know the hazards.  Less competition and arbitrage opportunities tempt traders despite dangers like wide spreads and market manipulations by whales, and  so long as you grasp the risks...  Nevertheless, newbies best stick with high-volume coins on major platforms.

There are many exchanges which have some pairs which didn't have more liquidity and some times it didn't show the price of the price for example of we want to swap 0.012 Ethereum and it gives us the less USDT then there should not be used that exchange because there is lack of liquidity in that pair.

Mostly users and traders made this type of mistake in which they are going to swap these tokens but the mistake is they don't see the price that which price is giving them the exchange.

Also we should be aware of it in terms of liquidity.

You have Google and Wikipedia for you to ask anything you wanna know, please lock this topic because it's not worth the stress someone coming up to tell you what LIQUIDITY is... Thanks.

I'm sure most of the fellows already expressed what is liquidity.

For the tips, I'd just like to advise the basic things as low liquidity pairs are unreliable so better not to take major trades in those pairs.

Use limit orders, in such pairs to avoid any uncertainty.
If you want to avoid liquidity-related issues better prefer a reputed exchange, most of the time in top-tier reputated exchanges liquidity-related issues never arise.

It is very simple to understand about Liquidity, when you want to trade in the exchanges then you need to make sell bid but when you see also buy order against of your coins this is called liquidity, that means there no way sell your coins without buy order (Liquidity), suppose you have matic and you want to sell it for USDT here USDT is the Liquidity against your matic.

People are sometimes confused about what liquidity is. When we buy or sell, liquidity makes our deals. Our orders will be waiting if there is no liquidity.

*One of the examples of liquidity that we see in exchanges is the "order book". The only thing we view as orders in the order book is liquidity. There is no liquidity if the order book is empty.


Maybe someone asks, why the price is still moving even there is no orders in the order book in the exchange? We must consider that cryptocurrency may be listed on multiple exchanges, including CEX and DEX. So, if there is no liquidity in this exchange but strong price action, it means that liquidity exists in other exchanges.

In simple terms, Liquidity in crypto basically means how easy it is to swap one coin for another or for fiat without affecting the price too much.  If its liquid, you can trade big amounts without seeing the price budge. Kinda like trying to dump a swimming pool into a lake versus a kiddie pool - the lake's volume can handle it better.  More liquidity signals a healthier market overall, with enough buyers and sellers present so things stay relatively stable.  Definitely something to watch for with smaller cap altcoins especially.

You can find some more info here: What is Liquidity in Cryptocurrency?

Liquidity is a term related to the economy more than cryptocurrencies. In short, it is the availability of cash necessary to conduct the transaction, as transactions are between different pairs, for example, your bank account is in dollars against cash or dollars against the local currency. To implement this procedure, both parties need to have enough cash to complete the transaction. In cryptocurrencies, liquidity is provided so that when you execute any buy or sell order, the order is executed directly without the need to wait.

It’s a measurement on easily you can convert an asset to usable cash. I remember reading topic like this on reddit long time ago when I first involved on DeFi investment.

In crypto, Simply it means the usable token(Bitcoin, Eth, Stablecoin and other asset with high valuation) that backed a certain token for easily conversions to usable token. Without liquidity, Token has no value which you can’t use to purchase something that has value.


You can read the ELI5 discussion about this topic here: https://www.reddit.com/r/explainlikeimfive/comments/1xgfsf/eli5_liquidity/

First read this https://www.investopedia.com/terms/l/liquidity.asp asking about what liquidity is should not be what can bother you to that extent when you can easily make use of the internet to google for the meaning, the read about it, if there's anything you may not understand well about liquidity, you can now come here to ask and seek for support in any area regarding that topic, so liquidity is simply an ideal means you can always get hold of your assets each time you needed them for your personal use or exchange.