What are the things to increase liquidity in crypto trading?
To develop a victorious white label bitcoin exchange platform, it is essential to launch your crypto exchange with the presence of liquidity feature. It is not in the matter for the liquidity enabled, but it has to be high liquidity for better trading experience. Before understanding how can you increase high liquidity for your crypto exchange, let us see what is liquidity and why you need to increase high liquidity for crypto exchange.
What is liquidity in crypto exchange?
Liquidity is the degree to which a particular asset can be quickly bought or sold without affecting the general stability of its price. In simplest terms, liquidity refers to the ability of an asset to be converted into cash easily.
The most liquid asset in existence in cash, since it is very stable and can be readily accessed and easily spent on buying, selling, paying debts or meeting immediate wants and needs. Therefore, cash is commonly used as the standard to gauge an asset’s liquidity.
Importance of liquidity:
In the context of cryptocurrencies, liquidity refers to the ability of a coin to be converted into cash or other coins easily. Liquidity is important for any tradeable assets including cryptocurrencies. A higher liquidity in the marketplace is preferred since it brings about the following advantages:
1. BETTER AND FAIR PRICES FOR EVERYONE
In a liquid market, prices are much fairer for crypto market users because of the large number of buyers and sellers. For instance, a robust marketplace with high trading activity ensures that sellers would sell at competitive prices (so as not to lose out) while buyers would bid at higher prices (according to their level of desperation), thereby creating an equilibrium market price that is equitable for all. A stable equilibrium price is a sign of market stability and ensures that market participants are not disadvantaged.
2. MARKET STABILITY
High liquidity ensures that prices are stable and will not be prone to large swings in the market due to large trades. For instance, it is very easy for “Whales” (term for individuals with huge amounts of money) to significantly influence prices – or worse, manipulate prices – in illiquid markets that have little market activity.
A single buy or sell order would create large swings in the cryptocurrency prices, which contributes to increased volatility and risks for the general market. In a liquid market, prices are stable enough to withstand large orders due to the presence of many market participants and their orders.
Comments
Post a Comment