Liquidity

Digital Assets Knowledge
How does the liquidity of a digital asset affect its trading?

Hint

Answer

The liquidity of a digital asset refers to how easily it can be bought or sold in the market without affecting its price. High liquidity indicates a healthy market with a large number of buyers and sellers, which facilitates smoother and quicker transactions. It also leads to lower transaction costs and less price volatility. Conversely, assets with low liquidity can experience high volatility and price slippage, making them riskier investments. For traders, liquidity is crucial as it affects the ability to enter or exit positions efficiently and impacts the overall trading strategy.