What is Liquidity?
In General, Liquidity is the effective exchange of assets into cash without affecting the price of the asset. When it comes to Cryptocurrency Exchange, we need to consider two major factors like Speed and the price variation as every trader wants to executive fast and cost effective trade.
In the Context of Crypto Trading, Liquidity is differentiate in three aspects
Asset Liquidity - The function between buyer and seller for the desired asset
Exchange Liquidity - The overall function of traders in the Cryptocurrency Exchange
Market Liquidity - The overall health of the market
Crypto traders need to evaluate all the above three liquidity before proceeding with trading, so that they can spot the perfect asset and the perfect time for trading.
Why is Liquidity Important in Cryptocurrency Exchange? Liquidity is always the indispensible factor in finance and no doubt that good liquidity could automatically build trust among traders in the market
Liquidity increases the stability and prevents traders and cryptocurrency exchagnes from market fluctuations. The influence of big market players does not affect the asset. For instance, Buying and selling of Bitcoin in bulk could have a minimum impact on the price of the bitcoin but in the case of other altcoins, bulk trading could affect the price of the altcoin. The added advantage in Stability is prediction. Traders can predict the market price in the future.
Good Liquidity insures fair and equal price for market participants. The reason behind the fair price is the huge volume of buyers and sellers. The asset with high trading activity lets sellers sell it at a competitive price and buyers naturally stick to it. Thus created the stable equilibrium which is much important for the good market
High Liquidity is also the sign of more number of traders so that the buy order as well as the sell order would fill out faster than in the low liquidity environment. This obviously increases the trading speed which enriches the user experience.
Accuracy for Technical Analysis
The more good the data, the more accurate the prediction. Thus Liquidity gives a huge volume of data for precise calculation
Factors Affecting Liquidity Trade Volume
Rules and Regulations and more.
Know more about Importance of Liquidity in Cryptocurrency exchange here !!
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