S4B Crypto Contest - Season 15
Hello, friends welcome to my post in which I have discussed heat stroke as part of my participation in this 👉contest organized by @waqarahmadshah
What is liquidity in crypto markets?
 |
|---|
In the crypto markets, what makes the buying and selling of crypto so easy is the liquidity that is provided without liquidity you cannot buy or sell crypto. With this intro I have just introduced, it is so clear that liquidity in the crypto markets means how easily crypto traders, investors, and anyone interested in the market, can easily buy and sell cryptocurrency.
To put it in a short word, liquidity in the crypto market means how easily crypto and fast cryptocurrency can be bought and sold without affecting the price of the crypto. When you see a crypto with a high liquidity, it means buyers are interested in the crypto, but if the liquidity is low it means it is sellers that are more interested.
The trading volume which is determined by buyers' and sellers' demand is the biggest factor that affects liquidity in crypto. Before a crypto must be listed (launched) there must be liquidity that is provided for the crypto so people can easily transact the crypto.
How does liquidity affect bid-ask spreads?
Before we begin to discuss how liquidity affects bid-ask spreads I would first like you to know that in the crypto market, the bid spreads are what show buyers interested which is indicated with green color, whereas the as-spreads show sellers interested which is indicated in red color as shown in the screenshot image.
Screenshot gotten from Binance
Now back to the main question we are here to solve. Having said so many things so you can understand better; liquidity affects bid-ask spreads as it is what shows the difference between the highest price and lowest price of an asset just as we have shared in the screenshot. Having said so, the higher price shows you how buyers are willing to buy the asset whereas the lower present represents the interest of sellers to asset the offer of the buyers.
High and low liquidity** are the two ways liquidity affects bid-ask spreads. High liquidity as we have said earlier means that buyers are so willing to buy the asset, whereas low is the opposite which means the interest of sellers is more than that of buyers.
How can sudden liquidity drops impact traders?
When there is a sudden drop in liquidity, impacts traders in so many ways some of these ways sudden liquidity drops impact traders are:
Bid-ask spreads will increase:
The bid-ask spreads can suddenly increase making the price of the currency expensive for traders to buy or sell the asset whenever they want.
Price volatility:
When there is a sudden liquidity drop, the asset will become more volatile which will become very difficult for traders to analyse the market.
To summarise my point in one sentence, it will become difficult for a large order to be executed and those who are big players in the market will be affected the most.
I am inviting: @dove11, @dave-hanny, and @simonnwigwe
Thank you, friend!
I'm @steem.history, who is steem witness.
Thank you for witnessvoting for me.
please click it!
(Go to https://steemit.com/~witnesses and type fbslo at the bottom of the page)
The weight is reduced because of the lack of Voting Power. If you vote for me as a witness, you can get my little vote.
https://x.com/AkwajiAfen/status/1812314577121530247
Thanks for inviting me but I post in this community when I have something where I feel confident. I know you know a lot about such topics so I wish you the best for this contest.
Thank you.