Liquidity is the ability to convert assets or securities into cash without influencing the market price. Higher the liquidity in cryptocurrency exchange, fairer would be the prices of cryptocurrencies and lesser would be the time taken to match buy and sell orders with each other.
Liquidity can be maintained despite the volatility in the cryptocurrency market by market makers who ensure stability by improving the trading volume of the exchange. They take calculative decisions based on the price gap that exists between crypto-assets and charge a commission for every transaction executed.
Factors to take into account while selecting a liquidity provider
Trustworthiness - Choose a reliable liquidity provider. Verify their work experience and ability to handle a huge trading volume.
Reporting - Clearly define the tasks allotted to the liquidity provider and make sure that they provide timely updates on the progress. Formulate an appropriate agreement for their services.
Liquidity can be enhanced by forming API’s with the other leading exchanges in the market or by establishing automatic trading bots by setting up accounts on other exchanges. Presence of liquidity in cryptocurrency exchange has become an essential attribute today.
Importance of liquidity in cryptocurrency exchange
Stability - Availability of adequate liquidity ensures stability in the market. The prices of assets will not be affected by the size of trades or the frequency of orders. Hence, there are low chances of slippage and there is certainty in the value of an asset over time. Hence, both individual trades and market trades are stable.
Resistant to manipulation - Price manipulation is quite common in the cryptocurrency market due to little regulatory framework and action taken by whales. Liquid assets and exchanges can prevent price manipulation of assets done to benefit a group of actors.
Less transaction time - Orders get filled faster with high liquidity. This leads to an enhanced trading experience and is advantageous for high-frequency traders. The exchange will profiteer as traders can enter and exit a position quickly.
Technical analysis - Accuracy is improved with the presence of high liquidity. It enables better price discovery through tighter spreads and greater stability. Charting information is more precise and not skewed.
Hence, upgrade your platform by possessing high liquidity in cryptocurrency exchange.