Exchange Liquidity

Exchange liquidity is the ability of a trading venue to facilitate purchases and sales of significant asset amounts without causing substantial price movement. Liquidity is created by market participants and can vary considerably between trading pairs.

One of the main sources of information about liquidity is the order book. Its market depth shows how much buy and sell liquidity is available at different price levels.

High liquidity is generally associated with tighter spreads and lower slippage for comparable trade sizes. However, liquidity can change rapidly during periods of high volatility.

Liquidity should also be distinguished from trading volume. High volume indicates that a large amount of trading occurred during a period, but it does not by itself guarantee a deep order book or low price impact for large orders.