What is Liquidity?
Liquidity represents how easily an asset can be converted into cash (or traded) without significantly affecting its market price. High liquidity means large orders can be executed quickly with minimal price impact, while low liquidity means trades may cause substantial price movements.
Key Aspects
Indicators
- Trading volume
- Bid-ask spread
- Market depth
- Order book density
- Fill rates
Market Impact
- Price slippage
- Execution speed
- Trading costs
- Order splitting needs
- Position sizing limits
Types of Liquidity
Market Liquidity
- Overall trading volume
- Exchange depth
- Market maker presence
- Cross-exchange availability
Order Book Liquidity
- Resting orders
- Visible depth
- Hidden liquidity
- Smart order routing
Related Terms
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