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Academy Blockchain Glossary Article

Liquidity

2021.07.03 OKEx

The amount of a currency or asset available to buy or sell in a market

Liquidity refers to how easy it is to buy or sell an asset in a market. A market with high liquidity has many active buyers and sellers, whereas an illiquid market has far fewer. 

Orders are quickly filled when buying or selling in a highly liquid market and there's less risk of the price slipping when trading with more capital. With daily volumes in trillion-dollar multiples and vast numbers of traders, the global forex market is consistently considered the planet's most liquid market. 

At the other end of the spectrum are markets surrounding more unique assets. Take art, for example. When trying to sell a painting, you might not find someone willing to pay the price you had hoped for if the right buyer doesn't attend the auction. 

Since highly liquid markets have many buyers and sellers, the difference between offers to buy and a seller's minimum acceptable price — known as the spread — is usually tight. By contrast, spreads in illiquid markets are often much wider.   

In cryptocurrency markets, the most liquid assets are those traded on major exchanges like OKEx. Of them, the assets with the highest market caps are usually the most liquid. For the most part, there are more buyers and sellers of BTC and ETH, for example, than one of the newer cryptocurrencies we regularly list. 
Like in the physical world, some of the most illiquid assets in the crypto industry are artwork and collectibles. Nonfungible token markets are highly illiquid. In many cases, there is only one of a particular NFT for sale. CryptoPunks sales at the beginning of 2021 demonstrate the impact sudden demand growth in highly illiquid markets can have on prices.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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