Liquidity refers to the easy conversion of assets into cash without influencing the price in the market. Hence it needs to take less time to match the buying and selling orders. Presence of high liquidity lifts the credibility of the exchange and ensures fair pricing of cryptocurrency in the market.
Since volatility is common in the uncertain cryptocurrency industry, liquidity maintains stability through a high trading volume. Market makers provide this service of creating liquidity by cleverly benefitting from the movement of prices and make a handsome commission for every transaction.
Factors to consider while selecting a liquidity provider
Trustworthiness - Make sure to select a reliable liquidity provider who has proven experience. Partnering with a dubious liquidity provider will backfire as it will tarnish the reputation of the exchange.
Reporting - Make sure to formulate a common agreement with your liquidity provider regarding the tasks to be performed and updates to be given on the activities executed.
Importance of liquidity
Stabilizes market conditions - There will be an absence of large price swings due to trading with the availability of liquidity. Big players in the market cannot manipulate the price. Even if large trades with a huge number of investors occur, there will not be fluctuations in the prices ensuring stability.
Faster processing of transactions - In a liquid market, traders can buy or sell cryptocurrencies according to their choice quickly. The fulfillment process is fast because of a strong demand supported by a healthy supply. Short term trading is also available where traders can quickly enter and exit a trade based on speculation.
Fairness in pricing - Optimum pricing is ensured promoting fairness and equality among all market participants. It is supported by a large number of buyers and sellers. Hence sellers can sell their assets at competitive prices prompting buyers to bid for higher prices. An equilibrium situation is ultimately created benefitting all the parties involved. It contributes to creating certainty in the market along with much-needed stability.
Hence realize the importance of liquidity by partnering with Blockchain App Factory. Our reliable process of Cryptocurrency exchange development will take your business to new heights. With supreme security measures and in-depth customization, we will fulfill your business requirements smoothly.