Liquidity

Let's nail down the word first, because everything else hangs off it. Liquidity is how easily you can buy or sell an asset without your own trade pushing the price around. A liquid market has lots of buyers and sellers standing ready at prices close together, so you can get in and out quickly and at roughly the price you expected. An illiquid market is thin — few participants, big gaps between the prices people will accept — so even a modest trade can shove the price and you struggle to find a counterparty. Hold onto that one idea: liquidity is "can I trade size without moving the price?" Every effect below is just that idea seen from a different angle.

• Slippage
  slippage is the gap between the price you expected and the price you actually got. In a liquid market there are plenty of resting orders to soak up your trade, so a large order barely nudges the price and slippage is tiny. In a thin market your order eats through the few orders available and you end up buying higher or selling lower than you planned — that difference is a direct, real cost. So high liquidity means low slippage, and low liquidity means you quietly pay more than the screen price.
• Execution speed
  a market order — an instruction to trade immediately at the best available price — fills almost instantly when there is always someone on the other side. In a liquid market, that is the case. In a thin market you may wait, or get a partial fill, meaning only part of your order trades and the rest sits unfilled because no one is there to take it. For anyone trading on short-term moves, that delay is itself a cost.
• Price manipulation and confidence
  because a thin market moves on small volume, it is easy for someone with modest capital to push the price around deliberately. Traders know this, so illiquid assets feel risky and people stay away — which keeps them thin. Liquid assets feel safe to enter and exit, so more people trade them, which deepens liquidity further. Liquidity tends to feed on itself in both directions.
• Arbitrage and price alignment across venues
  arbitrage is buying the same asset cheaply on one venue and selling it dearer on another to capture the gap. In crypto the same coin trades on many exchanges at once, so prices can drift apart. Liquidity is what lets arbitrageurs move real size to close that gap fast, which keeps the asset's price consistent everywhere. Thin markets let discrepancies linger because no one can trade enough to correct them cheaply.
• Risk management
  if you need to cut a position fast — say the market turns against you — liquidity is what lets you actually exit near the current price. In a liquid market you adjust your exposure in seconds with little cost. In a thin one, trying to dump a large position can collapse the price against you, so the very moment you most need to get out is the moment it is most expensive.

So when someone asks how liquidity affects trading, you do not need to memorise a list — you just keep asking "can I trade size without moving the price?" High liquidity means yes, so trades are cheap, fast, hard to manipulate, and easy to unwind; low liquidity means no, and every one of those flips the other way. Get that one reframe and the whole topic falls out of it!