Liquidity In The Crypto Market #010
Hello great minds,
I trust you are all doing perfectly fine and are enjoying your activities in the community as usual.
Today is another beautiful day and I am here to continue our discussion on the topic liquidity in the cryptomarket.
In our last discussion, we learnt about the factors contributing to slippage in the cryptomarket and we learnt that how news and event contributes to slippage, please join me as we begin.
FACTORS CONTRIBUTING TO SLIPPAGE IN THE CRYPTOMARKET
There are several factors contributing to slippage in the cryptomarket and one of them will be explained now.
- NEWS AND EVENT:
News and event in the cryptospace can lead to slippage in the cryptomarket and here are some ways in which this can occur.
MARKET ORDERS
One method in which news and event affects slippage in the market is through what we know as market orders.
Traders who make use of market orders in are very vulnerable to slippage in the market, especially during times of high volatility that are news driven.
Market orders are orders that are executed at the current market price, however some orders due to the effect of news don't execute at the price placed by the investor.
And this most times is due to rapid change in price caused by news.
STOP-LOSS ORDERS
There are some traders that makes use of stop-loss orders in their trades to limit potential losses.
In some instances however, especially in highly volatile markets, these orders can be triggered at a much lower price than intended, thus resulting in slippage as the market moves rapidly against a trader's position.
Also in market with a thin order book depth, there is more potential for slippage to occur with the use of stop-loss orders.
When a market possesses thin order book depth, it implies that there are no much orders in the market, and this could result in the market stopping a user out of the market at a price lower than intended, and this could lead to slippage in the market.
OVERREACTION AND PANIC
Another method in which news contribute to slippage is by causing panic in the minds of traders.
News as we know can lead to irritational behaviours from market participants as they tend to react to all news in the cryptomarket.
They react to both positive and negative news in the market
These overreaction from traders most times result in exaggerated price swings and slippage in the market, as traders struggle to adapt to new market conditions.
These news can move traders to sell off all their stake and this in most cases are irritational actions as they lead to slippage in the cryptomarket.
CONCLUSION
We have examined ways in which news and events can contribute to slippage in the cryptomarket.
In our next discussion, we shall learn more please stay tuned.
https://twitter.com/JuecoYoung/status/1715702953267343661