The liquidity of a cryptocurrency (Crypto liquidity ) is the ability of such a coin/token to be easily converted into regular fiat currencies or cash. Low liquidity indicates that market volatility is causing the prices of the cryptocurrency to sharply fall. However, high liquidity indicates a stable market with low volatility. Cryptocurrency liquidity allows traders to easily buy and sell assets with ease – such that a coin/token can be exchanged for fiat currency without drastic price volatility. In this post, we shall guide you on how to choose and trade the right cryptos using an auto crypto trading app.
What is Crypto Liquidity?
Crypto liquidity is provided by exchanges that allow trading of the coin/token in a quick and secure manner. Traders can trade crypto through these platforms as well as buy and sell on the coin/token directly, without giving their fiat currency details. Most exchanges offer a currency pair for each of the coins or tokens, in which the sellers will receive a fixed amount of cryptocurrency in exchange for their fiat currencies while the buyers will receive fiat currency, or the equivalent value of the cryptocurrency to be traded. The difference between both these amounts is what is referred to as a “coin to fiat ratio”.
Crypto Liquidity and Trading
Notably, there is a distinction between the trading price of the coin/token and the “liquidity price” of the coin/token. For the purpose of this article, we’ll refer to the liquidity price as the coin/token’s asking price, a coin/token’s trading price, or the cash equivalent (at a rate of fiat currency/bank) of the selling price. This is because if the liquidity price of a coin/token is significantly higher than the trading price, the coin/token may become difficult to purchase by retail investors, and possibly even difficult to sell to other traders. As a result, retail traders may opt to cash in their profits and unload their holdings at a price lower than the liquidity price in order to minimize their risk.
How to Buy a Crypto
Here is a guide for first-time cryptocurrency traders. Paypal: You will first need to buy Bitcoin and Ethereum using a US Paypal account. Alternatively, you can buy bitcoin and ether with a bank transfer, credit card, or gift card. Once you have purchased your cryptocurrency you will then need to send it to an exchange such as Binance, Coinbase, Gemini, Poloniex, Kraken, or Bitfinex. This is to ensure that your cryptocurrency is physically stored on the exchange before you continue your trading. Once your cryptocurrency is on the exchange, you can open an account and purchase as many cryptocurrencies as you want for you to sell in the future. Remember, buy low and sell high, so buy at a price that gives you a very high rate of return.
Example of Low Liquidity
If a cryptocurrency has little liquidity, such as bitcoin, it is very difficult to trade. If you want to sell your bitcoins, you must either wait a long time for the price to rise so that you can buy back the same amount at a lower price or sell them at a higher price and risk the price of bitcoin going lower once they are bought by someone else at that higher price. On the flip side, if you are someone who wishes to buy crypto assets, you can only do so at a set price that the cryptocurrency owner has set. These prices are subject to change in the future, so you may end up paying more or less than what the current market price is. If a cryptocurrency has lots of liquidity, then it is very easy to buy or sell.
How to Sell a Crypto
Selling a cryptocurrency is as easy as buying one, however, due to the risk and volatility associated with cryptocurrency, it is important to be cautious. Some common methods for selling crypto include using a centralized exchange, using a centralized market maker (SMI), using a cryptocurrency custodian (Coinmama, Coinbase, etc.), or through a traditional bank account. Buying a currency that is not liquid is usually done with a highly liquid asset like Bitcoin or Ethereum, and purchasing crypto with a fiat currency is usually done with a private bank account.
So what do we know? After all, even if the saying is not necessarily true, it gives us an interesting insight. We know that the buying and selling of cryptocurrencies are not easy and that the volatility of such coins/tokens could be also extreme. Therefore, whenever you want to trade, look for coins/tokens with acceptable liquidity such as Bitcoin or Ethereum. Trading with an app such as Royal Q is highly recommended. To read more about Royal Q, click this link.