#Liquidity101
๐ง LIQUIDITY 101 โ INTRODUCTION TO LIQUIDITY
๐ What is Liquidity?
Liquidity is a measure of how easily and quickly you can buy or sell an asset without causing a significant change in its price.
> ๐ The higher the liquidity = the easier the transactions without disrupting the market price.
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๐ฏ Simple Example:
Imagine you want to sell 1 Bitcoin:
If many people want to buy โ you can sell it immediately at the market price โ high liquidity.
If few people want to buy โ you have to lower the price to sell โ low liquidity.
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๐ Types of Liquidity:
1. Asset Liquidity
How quickly an asset can be converted to cash without significant loss.
Example:
๐ต Very liquid: Cash, BTC, ETH, large stocks.
๐ Less liquid: Real estate, art, small altcoins.
2. Market Liquidity
Measures how active the market is for a particular asset.
Looked at from:
Daily trading volume.
Number of buy and sell orders in the order book.
Spread (difference between buy and sell price).
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๐ High vs Low Liquidity:
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๐ Why is Liquidity Important?
โ Entering and exiting the market easily without making drastic price changes.
โ Reduces losses due to slippage.
โ More comfortable for large traders.
โ Indicates market confidence and activity.
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๐ Liquidity in CEX vs DEX
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๐ก About Liquidity Pool (in DEX)
In DEX like Uniswap or PancakeSwap:
Users deposit tokens into the pool (for example, ETH/US
