Liquidity In The Crypto Market #005

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Hello great minds,

I trust you are all doing perfectly fine and you are enjoying your activities in the community as we join hands in promoting steemit across various platforms.

It is a wonderful opportunity to come before you all this day to discuss on another issue of great importance in the cryptospace.

In our last discussion, we learnt about liquidity in the cryptospace and we learnt how liquidity aids buying and selling in the cryptomarket.

Due to the bulkiness of the content and for proper understanding, I had to split the post into sectors and we shall continue our understanding of how liquidity aids buying and selling.

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HOW LIQUIDITY AIDS BUYING AND SELLING IN THE CRYPTOMARKET

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There are different ways in which liquidity aids buying and selling in the cryptomarket and we shall be examining them now

• REDUCED SLIPPAGE:

The reduction of slippage in the market is one Important way in which liquidity aids buying in the market.

For us to understand how liquidity reduces slippage, first let's understand what slippage is in the cryptospace.

Slippage can be explained to be the difference between the expected price a trade is meant to be executed and the exact price the trade was executed.

The phenomenon of slippage mostly occurs in an illiquid market or a fast moving market, where there is a mismatch between the price at which a trade was executed and the price at which the trader intend to sell or buy an asset.

To fully understand the Impact of slippage in the market and on a trader.

Consider a scenario where a trader wants to purchase 1000 shares of a commodity that costs $100 each, but as a result of lack of liquidity, the trader's order might be executed at a higher price, probably $110 each.

This will increase the cost on the trader, making him to spend an additional $10000.

That is how bad slippage is, if it is against you.

When the market is liquid, there will be no such thing as slippage as traders will buy and sell commodity at their intended price.

Liquidity helps to reduce slippage buy making available a deep pool of buyers and sellers in the market.

Liquidity also reduces the chance for slippage by narrowing bid-ask spread in the market.

Bid price is the price the buyers are willing to buy a commodity while ask price is the price sellers are willing to sell.

By narrowing the gap between them, liquidity reduces the chance for slippage to occur.

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CONCLUSION

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Liquidity is very important in the crypto market, we have seen how enough liquidity can reduce slippage in the market and save an investor from a lot of cost.

There are still other ways in which liquidity is very valuable, we shall discuss some more in our next post.