Liquidity 101: Boost Your Trade with This Foremost Measure

When comparing different exchanges, one of the most used terms is liquidity (LIQ). While factors such as security and fees are also crucial to consider in cryptocurrency price characteristics, LIQ has an enormous impact on one’s ability to access a fair price for their crypto assets. In this article by, you can find everything you need to know about this financial measure.

What is liquidity (LIQ)?

Liquidity is an effective measure of the ability to buy or sell a particular asset at its current reasonable value. For example, if you have a certain amount of Bitcoin and want to exchange it for US dollars, there must be enough demand on the other side of the order for you to sell at the current exchange rate.

If you want to sell $1 million worth of Bitcoin and there is only $500,000 worth of buying orders close to the current market rate, then you will sell your Bitcoin at a lower price than what is generally accepted.

Furthermore, your selling order will also decrease the current price of Bitcoin since there isn’t enough buying order at the price you requested. The phenomenon of not being able to buy or sell a particular asset in large volumes at the market price is known as “slippage” in the market.

Cash is considered the most liquid asset in the world because it can be used to purchase anything without slippage. Bitcoin was intended to be a form of digital cash. However, it still lacks a place close to LIQ levels found in fiat currencies such as the US dollar.

LIQ and Volume are Two Different Things

Liquidity is often confused with volume, but they are fundamentally two different things. There is a close relationship between LIQ and volume, but high volume does not necessarily mean high liquidity.

Trading volume is a measure of the value of transactions made within a specific period and is typically measured daily. On the other hand, liquidity is concerned with buy and sell orders currently on the order book. In other words, volume is a measure of transactions that have already taken place, while LIQ shows the buying and selling bids currently accepted on the exchange.

Does Higher Trading Volume Bring More Liquidity?

There is no direct link between trading volume and liquidity. However, a high-volume exchange is likely to attract more traders. When it comes to crypto exchanges, network effects are significant. Everyone wants to be in the most liquid markets on the exchange.

High trading volumes attract new traders to a cryptocurrency. This leads to more buy and sell orders being placed. Thus, a higher level of liquidity is achieved. Higher volumes and more users generally mean that the exchange can offer better fees and rates, which compounds its effect and increases the value they offer compared to other exchanges.

Similar News

COCOS-BCX (COCOS): Empowering the Future of Blockchain Blockchain technology has created a series of radical changes in the gaming industry. Games built on this technology are more decentralized, transparent, and secure than traditional games. Those familiar with the gaming industry are aware...
The Ultimate Metaverse Guide: Discover the Virtual World Imagine a virtual world where billions of people live, work, shop, learn, and interact with each other from the comfort of their physical world seats. In this virtual ecosystem, you have a digital copy known...
What is Hamster Coin (HAM)? First Meme Coin on the BNB Chain Throughout history, there have been meme coins that have attracted attention with their sudden rise and then disappeared by experiencing crashes. Essentially, these assets do not gain value from fundamental values like large cryptocurrencies such...
Discover Metalcore NFT: 10000 Unique NFTs Metalcore NFT: What is the 10000 Unique NFT Collection? In this article on, we will answer all the questions that our readers are curious about in detail. At the same time, we will also...
What is Brawler Bearz NFT? Discover the Digital Bears Brawler Bearz NFT: What is the 4169 Unique NFT Collection? In this article on, we will answer all the questions that our readers are curious about in detail. At the same time, we will...
Mark Zuckerberg 101: The Genius Behind Social Media Empire Mark Zuckerberg is an American entrepreneur, businessman, and philanthropist. He is the co-founder and CEO of Facebook, one of the world’s most popular social media platforms. He is also a founder and CEO of Meta...