In cryptocurrency trading, liquidity refers to the ease with which a digital asset can be bought or sold in the market without causing a significant impact on its price. A market is considered liquid when there are enough buyers and sellers actively trading an asset, facilitating smooth and efficient transactions.
A liquid market typically has a narrow bid-ask spread, which is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). In other words, there is minimal price difference between buying and selling.
Liquidity is crucial for traders, as it provides them with the ability to enter or exit positions with minimal price impact. Illiquid markets, on the other hand, may experience higher volatility and larger price swings even with small trades.
