What is liquidity and how does it affect trading?
Veles2 min read·Just now--
Have you ever noticed that the price of the same coin differs across exchanges, or that a trade executes slowly or with slippage? There’s one factor behind all of this — liquidity.
Liquidity is how easily an asset can be bought or sold at market price without significantly affecting it. The higher the liquidity, the faster a trade executes and the smaller the gap between the buy and sell price.
Think of an apple market. If there are plenty of buyers and sellers — you’ll instantly sell your apple at a fair price. If the market is nearly empty — you’ll either wait a long time for a buyer or have to drop the price significantly
How to choose a coin on a CEX?
On a centralized exchange, liquidity is formed through the order book — the more users and trading volume on the platform, the deeper the order book and the more efficient the trading.
1️⃣ Look at the 24-hour trading volume — a comfortable minimum benchmark is $50–100M per day.
2️⃣ Evaluate the spread — the difference between the best buy and sell price. On liquid pairs, the spread is a fraction of a percent. On low-liquidity altcoins it can reach 1–3% or more, already eating into profit before the trade even begins.
3️⃣ Check order book depth — how many orders sit close to the current price. If the book is thin, even a mid-sized trade will move the price.
How to choose a coin on a DEX?
On a decentralized exchange, liquidity is formed through liquidity pools.
Hyperliquid is the largest DEX by perpetual futures trading volume, with a daily volume of ~$4–5B. Liquidity on this platform is comparable to major centralized exchanges.
1️⃣ Look at liquidity pool depth — the more funds in the pool, the less your trade impacts the price.
2️⃣ Check the price impact before confirming a trade — if it’s above 1–2%, consider reducing your position size.
3️⃣ Trade popular pairs — lesser-known tokens may have minimal pools and high slippage.
