What is liquidity?

Liquidity has to do to with volume and efficiency. You can think of it as friction. If you get into an asset, you want it to be as frictionless as possible. That means you get in when you want to and you get out when you want to. There are a few situations that may make that untenable. One scenario that could happen is when everyone wants to sell, you will find that there are no buyers – that’s not a liquid market. You may discover that finding a seller or finding a buyer is not easy because there is lackluster interest in the asset; or you may find that there are not enough exchanges supporting the market, which reduces the potential trader’s access to that asset. These

are just a few ways the asset is illiquid – there are more. But you get the point. When you

consider an asset, you need to assess its liquidity and its volatility. Liquidity without volatility does not give you tradability, while volatility without liquidity doesn’t give you predictability.

This is partially the reason Bitcoin is more valuable and in demand than its alternatives and the USD-BTC pair is a popular investment tool for day traders. It is also because there is sufficient liquidity to make your trades almost seamless and efficient. This is called a liquidity premium, and it is one that you should be willing to pay, as the payoff is worth it.

But that is a fiat-crypto pair (meaning it is the trade between a fiat currency and a

cryptocurrency). What about a crypto-crypto pair? Well, there are several large volume and

liquid pairs that you can work with. One such pair is the BTC-ETH pair.

With respect to tradability, you should have your basket well differentiated between fiat-cryptos and crypto-cryptos, and even have a basket that is fiat-crypto-fiat or crypto-fiat-crypto, or some other three-way combination.

You want to be an expert in at least two or three combinations, and that expertise comes in the form of study and practice. You have to study the fundamentals and you have to practice the art of reading the charts. In the trading business these are called the fundamentals and the technical. You have to study the fundamentals – which includes knowledge of the asset, how it works, market sentiment, regulation, and analysis. On the other hand you have to know how to read the

charts. The charts and the analysis of the movement of price is a comprehensive mathematical and statistical representation of the psychology of the market. It is fairly plausible to understand where the market is moving in the future by looking at sufficient data from the past. That’s the technical aspect of the analysis.

Become an expert at BTC vs Ethereum and BTC vs USD to start.