Do you know what the difference between exchange liquidity and digital asset liquidity is? Or why is it essential for crypto traders?
Let’s try to clear out the fundamental difference between these two. What’s more, we’ll check why investing in highly liquid cryptocurrencies is still a good opening.
The Role of Liquidity for the Marketplace
The sharp increase in market capitalization has created additional prospects in the development of the crypto market. Meanwhile, seasoned investors claim that over 95% of assets are not illiquid at all.
Currently, the crypto market offers over 8000 different digital instruments. Traders of all levels can invest in crypto assets at their own risk.
However, some people choose coins from the top 100 list only. Others are betting on little-known assets that can go off at a dash and generate eye-popping profits.
In any case, why is liquidity a determining factor for a marketplace?
The high level of liquidity allows traders to buy and sell assets at market prices. If we are talking about illiquid assets, then there will be no correlation between supply and demand. As a result, the selling price will be below the market price.
Exchange Liquidity
The primary purpose of a cryptocurrency exchange is to provide users with the ability to buy and sell coins at market prices.
Still, exchanges can be both liquid and non-liquid ones. The higher the liquidity level of the exchange, the faster users will exchange coins and conclude transactions.
Cryptocurrency Liquidity
Cryptocurrency liquidity depends on several factors, including:
◻ The total volume of daily trades. High trading volume means that you are dealing with an exchange that is popular with active traders. Be sure to keep track of these parameters, especially when it comes to a specific currency pair.
◻ Depth of the order book. A deep order book means that traders have free choice of the best price. This applies both to buying and selling a digital asset.
◻ Spreads. This indicator shows the difference between the highest purchase price and the lowest selling price. Keep in mind that this figure is different for each specific coin. Advanced traders are constantly comparing the prices of various crypto pairs to find a profitable price spread and make a profit.
What is the Role of Liquidity Providers?
Liquidity providers (LPs) are responsible for balancing supply and demand for trading pairs. As a result, users witness minimal spreads and conclude transactions instantly.
LPs are sometimes referred to as “Market Makers.” LPs earn from commissions that users pay after a trade is made.
Profit Center FX Liquidity Aggregator
The software is part of the trading server. The primary function of a liquidity aggregator is to combine digital channels from multiple providers and create a single digital stream.
The software provides end-users with the best prices available in the market. The software also minimizes the risk of low liquidity during periods when the market is unstable.
Profit Center FX offers favorable terms of cooperation for Forex brokers, CFDs, hedge funds, banking institutions, financial companies, and so on.
