Liquidity
Liquidity refers to the ability of an asset to be quickly bought, sold, or converted into cash without affecting its market price.
Liquid assets are usually actively traded and easy to buy and sell.
Assets with low liquidity may take longer or require a larger price discount to trade (the so-called excessive slippage and wear and tear are mainly caused by this).
1. Trading liquidity: How easy it is to buy and sell a cryptocurrency on an exchange. For example, Bitcoin and Ethereum have high liquidity due to their large market demand and high trading volume. Newly issued small currencies may have low liquidity due to low demand.
2. Liquidity Pool: This is a mechanism in decentralized exchanges (such as Uniswap, PancakeSwap) where users can deposit funds into a pool to provide liquidity, allowing traders to buy and sell tokens directly through the pool. Those who provide liquidity will earn fees as a reward.
In simple terms, the higher the liquidity, the lower the transaction costs and the smaller the price fluctuations; the lower the liquidity, the greater the potential for significant price slippage. You should pay more attention to liquidity when trading, as it affects the trading experience and profitability.
When selecting coins, try to choose those with higher liquidity.
