What is Liquidity in Crypto Market?
Liquidity in the cryptocurrency market or custodial institutions refers to the ability to make trades freely without significant slippage and satisfy withdrawal requests without delays
A liquid trading pair allows users to buy and sell paired assets at the current price without impacting the order book and causing price fluctuations
Centralized exchanges measure liquidity through the order book, order density, and spread, while decentralized exchanges rely on assets in the liquidity pool
Total liquidity for assets listed on multiple markets is the sum of available liquidity across those markets
Liquidity represents the ease with which a market or institution can process resource movement and maintain balance between buyers and sellers
Liquidity is crucial because it provides a stable market, reduces price fluctuations, and minimizes the risk of slippage when selling assets
Low-cap crypto assets may have low liquidity, requiring traders to assess liquidity pool data before trading on decentralized exchanges.