Liquidity
Liquidity measures how easily an asset can be bought or sold without significantly impacting its price. High liquidity means tight spreads and deep orderbooks.
Understanding the Concept
Liquidity is the lifeblood of markets. High liquidity = easy trades at fair prices. Low liquidity = slippage, wide spreads, and stuck positions.
You measure liquidity by: spread (tighter = more liquid), orderbook depth (deeper = more liquid), volume (higher = more liquid), and market impact (how much your order moves price).
Crypto liquidity varies enormously. BTC and ETH are highly liquid. Random altcoins might have $10,000 daily volume and 5% spreads. Know your market's liquidity before sizing positions.
Real-World Example
You want to sell 1,000 ETH. On a liquid exchange, the orderbook absorbs this with 0.05% slippage. On an illiquid DEX, you'd move the price 2% just filling your order. Liquidity data prevents costly mistakes.
How PRISM Handles This
PRISM calculates liquidity scores for every trading pair. We measure spread, depth, and volume across exchanges. Our /liquidity endpoint shows where you can execute large orders efficiently. Avoid low-liquidity traps.
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