Education | Article

Liquidity: What you Need to know

By Dan Mulligan | MAY 02, 2022

Liquidity: What you Need to know 2:52 Min Read

Liquidity: What you Need to know

Let’s take a look at one of the biggest determining factors behind a product’s price: liquidity. Greater liquidity means that the market is more flexible and adaptable. Asset prices tend to be stable when there is high liquidity, with low spreads and it is easier to find a buyer or seller. Therefore, the bid/offer spread will be smaller and present fewer impediments to executing a trade. A trader’s position can be closed quickly, at a price close to his or her original entry point.

The more a digital asset like BTC or ETH trades every day, the more likely it is to have a steady price. Assets that don’t trade as often can be subject to greater price swings. When calculating the liquidity of a particular digital asset, it’s important to look at the total of all trading activity taking place on exchanges with this token as its base currency, paired against other tokens.

Market Liquidity

When you talk about market liquidity, you’re referring to the ease with which an asset can be bought or sold, and the stability of its price. A super liquid asset, such as a market-leading smartphone, will be available to buy at stable prices in many places around the world. On the other hand, a highly illiquid asset like a rare painting that is owned by a single collector won’t have any buyers or sellers beyond that one person. Assets can range from highly illiquid (buying a house) to fairly liquid (stocks) to extremely liquid (cash).

Liquidity on AscendEX

Poor liquidity is a bad thing no matter if you’re trading stocks, Forex, fiat, or crypto. Suppose the user wants to sell or purchase $100 of OMI (an industry-leading NFT digital asset with robust liquidity) on AscendEX. In that case, he will sell his assets almost instantly without any severe impact on price. For crypto assets, being listed on a popular platform allows many users to buy into the assets directly at efficient prices. On the other hand, if someone wants to purchase token XYZ and there are poor liquidity conditions, meaning a wider spread, thinner orderbook, and lower trade volume, their purchase or sale price will be negatively affected as their order will attempt to be filled on an order book with a larger spread meaning the final price will be higher or lower than their desired buy or sell price giving them unfavorable pricing.

AscendEX has a variety of market maker and liquidity services available in support of market efficiency. Designated Market Makers (DMMs) and liquidity mining services contribute to increasing market liquidity through their provision to specific token listings. It’s all designed to build a more mature and efficient marketplace.

Liquidity is a crucial factor when determining the price of a digital asset. It’s important to understand it so that you can make informed decisions when investing in this booming market. As with any novice investor, do your research and only invest what you are comfortable losing. It is our strong belief that the increased market liquidity will provide a more stable and reliable trading platform for token issuers. Investors that are in search of a more regulated and transparent exchange to trade on will be pleased by the progress that AscendEX has made since its public launch. We want to thank everyone for their support and look forward to having you join our community.

Author: Dan Mulligan

SaaS marketer, trader of internet coins, tech enthusiast, and home chef. Buildooor of Tidus Wallet and current Marketing Director at AscendEX. Dan enjoys crypto twitter, market volatility, anime, and paid ads. Key accomplishments: - 5th Grade Readers are Leaders Winner - 2-0 Amateur Boxing Record - Former Overwatch Grandmaster

Education: B.A & MBA - Marketing Communications

Crypto Class of: 2016/17

Fun Fact: Served Method man and Red man ice cream from 2004-2009



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