Have you ever experienced a coin swap that turned out way beyond your expectations? Sell$ETH When the price is $3410 but you only get $7? Panic? Do you want to do it again? Of course not 😂
What do you think is the cause? It could be that you are being affected by what is called low liquidity. Well, let's discuss liquidity
What is liquidity?
Simply put, liquidity is like a toll road. The more cars that pass (transactions), the smoother the toll road will be. Well, in the crypto world, liquidity refers to how quickly we can sell or buy crypto assets such as B$BTC , #ETH , $SOL or other coins at prices close to market prices.
The higher the liquidity of an asset, the smaller the possibility of a gap, which is the difference between the expected price and the actual price when the transaction occurs. In the crypto market, liquidity is influenced by various factors such as the amount of trading volume, exchange activity, and community adoption. Exchanges such as #Binance that have many users and high transaction volumes will make the liquidity of the coins on Binance better, allowing for fast and efficient transactions.
Why is liquidity so important?
Price Stability: The higher the liquidity, the more stable the price of the coins you exchange will be. Just imagine if the toll road is badly congested, your trip will definitely be long and full of uncertainty, right? The same goes for coin swaps, if the liquidity is thin, the price can change drastically when you make a transaction.
Faster Transaction Execution: In digital asset trading, time is of the essence. High liquidity allows transactions to be executed quickly and efficiently because there are many active buyers and sellers. Well, this is very helpful for us crypto traders because of the fast-moving crypto market situation where asset prices can change in seconds.
Slippage: Slippage is like the difference between the price you see when you want to swap and the price you actually get. The thinner the liquidity, the more likely you are to experience slippage. So, the coins you get may be less than you expected.
Back to the example above, someone swapped 1 #ETH🔥🔥🔥🔥 worth $3410 so they only got $33 USDC. This is because the ETH-USDC pair most likely has very thin liquidity. As a result, when he did the swap, the price of ETH immediately plummeted and he had to accept the consequences.
Tips to avoid being scammed by liquidity:
Check Liquidity: Before swapping, always check the total liquidity value of the coin pair you want to swap. The higher the value, the better.
Pay Attention to Slippage: Look at the estimated slippage displayed. The smaller it is, the better. If the slippage is too large, it is better to cancel the intention to swap.
Choose a Trusted DEX: Choose a DEX that is well-known and has a high trading volume. Typically, large DEXs have deeper liquidity.
Learn a Lot: Don't just swap! Take the time to learn the basics about DEX and liquidity. There are many tutorials and articles you can read for free on the internet.
How to Measure the Liquidity of Crypto Assets:
Trading Volume: Is the Market Busy or Quiet? Try to pay attention to how many people are buying and selling a particular crypto asset in a day. If there are many transactions, it means the market is busy and the asset is easy to buy and sell. It's like queuing at the cashier, if the queue is short, it will be finished quickly, right?
Bid-Ask Spread: Difference in Buying and Selling Prices Have you ever heard of the term bargaining? Well, in the crypto world there is also something called bid (buying price) and ask (selling price). The smaller the difference between the buying and selling prices, the easier it is for you to transact. If the difference is large, it means it is difficult to find a price that suits both parties.
Order Book Depth: Are There Many People Waiting? Imagine you are about to buy a concert ticket. If there are a lot of people queuing to buy the same ticket, it means that the ticket is in high demand. Well, it's the same in the crypto world. If there are a lot of people waiting to buy or sell a certain asset, it means that the asset has high liquidity.
Conclusion
Liquidity is an important factor that you must pay attention to when making a swap on an exchange. By understanding the concept of liquidity, you can minimize the risk of loss and get better swap results.
Remember, don't be a victim of liquidity!
