The Concept Of Liquidity In The Crypto Market #003

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Hello crypto friends,

I am here again with the username @jueco and I am happy to come before you all this day to discuss on another crucial matter in the cryptospace.

I believe you are all doing perfectly fine and are enjoying your activities in the community.

Today, we shall be concluding our discussion on liquidity in the cryptomarket as we have begun it some time ago.

In our last discussion, we revised what Liquidity in the market entails and we examined the advantages of liquidity in the cryptomarket.

However, there are few dis-advantages of liquidity in the market and we shall be discussing that now.

For emphasis sake, liquidity can be explained to be the ease to which commodities are bought and sold in the market.

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DIS-ADVANTAGES OF LIQUIDITY IN THE MARKET

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Just as the saying goes that anything that posses advantage must also posses some dis-advantages.

Examining these dis-advantages will help us to make wise decisions in a liquid market, please stay tuned:

• PRICE VOLATILITY:

One dis-advantage of liquidity in the cryptomarket is the increment in volatility of the market.

Recall that liquidity in a market means there are so many active participant in the market.

Buying and selling aggressively in the market often leads to an increased volatility, thus making it very difficult for traders to predict the next movement of the market.

• MARKET MANIPULATION:

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Another dis-advantage of a liquid market is that there are often lots of manipulation going on in it.

A highly liquid market often attract market manipulators and they tend to take advantage of the liquidity of the market and drive market in their preferred direction, thus deceiving other investors.

This market manipulators come and purchase commodity with a huge amount of money, thus affecting market price.

• LACK OF PRIVACY:

Lack of privacy is another dis-advantage of a liquid market.

In a liquid market, it is very easy to trace the activities of the whales, thus exposing their trading strategies.

In a liquid market, there are so many buyers and sellers, however the buy and sell of whales are often noticed, and they can be monitored by the minors, thus exposing the activities of the whales.

• SLIPPAGE:

Slippage can be explained to be a phenomenon in the market where a trade is executed at a different price, other than the one in which it was initiated.

With a highly liquid market, there may be frequent occurrence of slippage which is often because there are no matching orders in the market.

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CONCLUSION

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In as much as liquidity is very important in the cryptomarket, it also poses some dis-advantages which we have examined today.

We should be very careful when we trade a highly liquid market as anything can happen at any time.