What is Liquidity?

Liquidity generally refers to the ease with which cash can exchange an asset without affecting the price. This definition has two aspects: ease (speed and effort required) and price (slippage, or the difference between the expected price and executed price, on a large order).

When considering liquidity within the context of crypto exchanges, both components are critical — a trader needs to have transactions completed as quickly and cost-effectively as possible.

Beyond liquidity for a specific asset, we also talk about market liquidity, which deals with the overall market's health, such as a city's real estate market or the crypto market. A liquid market is one in which assets can be easily bought and sold at stable, transparent prices.