A question about trading liquidity

[~speedx~]

About Liquidity what I understood that is if a trader buys a coin worth $100 and later sells his coin at $90 due to bad market conditions. Here liquidity is $10.

• Now my question is because of liquidity does that project or coin get profited?
  
• Or does the profit accrue to those who later make a profit in trading?

[Hamza2424]

Hmm, Nope it's not liquidity that decides the profit or loss but the trader itself, it's the trader who decides his trade in profit or loss, Liquidity is not the reason for the change in market price, it's the trades getting executed.

Liquidity is ese with which we can buy or sell coins/tokens, Higher liquidity = lower price changes in the market, and lower liquidity = higher changes in the market price. For the rest in order to go deep into this concept I would like to hear more from your side, to know what is your perspective about the liquidity and price fluctuation in the market. But yup liquidity itself cant generate profit for traders or projects.

[Oshosondy]

See this definition:

Definition: Liquidity means how quickly you can get your hands on your cash. In simpler terms, liquidity is to get your money whenever you need it.

If you buy a coin, wanted to sell it and it filled immediately at good mark price, that means the coin has high liquidity. Coins with huge marketcap like bitcoin that has high trading volume has high liquidity. You can easily sell your bitcoin because buyers are readily be available at anytime you want to sell it.

[livingfree]

That's a loss but if you want to make that a description of liquidity, well then - you've been liquidated.

Both of the guys are correct about what liquidity means. For other terms, it's also about the volume so buying and selling won't be a problem for a trader.

And that's a factor to be chosen when you're investing on the market and as well as when you're trading.

[FatFork]

Uh, that's not quite how liquidity works...  Liquidity is more about how easily you can buy and sell that coin, not the difference between your buy and sell price.  So, even if you lost $10 because of a bad market, that doesn't mean liquidity itself was $10.

As for the project profiting, that's a whole different story. The project itself doesn't really care about your individual trades. They only profit if they sell new coins, not from what happens on the secondary market (where people like us buy and sell from each other).

The profit definitely goes to whoever buys low and sells high, not because of liquidity, but because they timed the market well.

[BitMaxz]

Now my question is because of liquidity does that project or coin get profited?

Any project or coins don't get any revenue from liquidation they only get profited by selling their holdings, coins, or ICO.

If you are a trader and you set a buy position at $100 when you loss $10 due to bad market conditions and close the position like others said it doesn't mean you are liquidated what I see you set a stop loss to lose $10 or you manage your risk to lose only $10.
Those who liquidated are those traders who hit the liquidation limit if you are trading in futures you should be able to see the liquidation limit before you open a buy or sell position once the market price reaches that limit then your account will be liquidated cross or isolated. It does have some effect on the market if you see many traders got liquidated but they can't control the whole market unless they are whales.

I think the link below will explain how liquidation works

- https://www.binance.com/en/support/faq/how-liquidation-works-in-futures-trading-7ba80e1b406f40a0a140a84b3a10c387

[logfiles]

OP, you got it all wrong, Some few members up there explained about what liquidity means, I hope you manage to understand it from now on.
I don't know, but maybe you are confusing liquidity with the spread in the order book. The two are so or different, though sometimes liquidity can affect the spread of a trading assets.

[Text]

No, the project or coin does not directly profit from liquidity. However, high liquidity is beneficial for the project or coin as it attracts more traders and investors due to the stability in price and the ease of trading.

Yes, profits from trading accrue to the traders who buy low and sell high. If a trader can buy the coin at $90 (like in your example) and later sell it at a higher price (say $100), the trader makes a profit.

[Charles-Tim]

Now my question is because of liquidity does that project or coin get profited?

Any project or coins don't get any revenue from liquidation they only get profited by selling their holdings, coins, or ICO.

If you are a trader and you set a buy position at $100 when you loss $10 due to bad market conditions and close the position like others said it doesn't mean you are liquidated what I see you set a stop loss to lose $10 or you manage your risk to lose only $10.
Those who liquidated are those traders who hit the liquidation limit if you are trading in futures you should be able to see the liquidation limit before you open a buy or sell position once the market price reaches that limit then your account will be liquidated cross or isolated. It does have some effect on the market if you see many traders got liquidated but they can't control the whole market unless they are whales.

I think the link below will explain how liquidation works

- https://www.binance.com/en/support/faq/how-liquidation-works-in-futures-trading-7ba80e1b406f40a0a140a84b3a10c387

Your explanation of liquidation is correct but OP is asking about liquidity and not liquidation. Liquidity is completely different in meaning from liquidation. Read what other people posted before you, to know what liquidity is. But I guess you did not see it well because I always thought you are a trader. A good trader knows what liquidity and liquidation are.

[slaman29]

Strange question but I think OP could be trying to ask about liquidation in trading, not really liquidity.

Think of liquidity as how much money there is in a 'market'. The more money there is, the faster and easier it is for you and me to exchange money with that market.

Example, you go to moneychanger to change rupee to USD, but he doesn't have much USD. Then he has to wait for someone to come to him to change USD to rupee, only then can he give you USD.

That's LOW liquidity.

[Yaunfitda]

For me liquidity refers on how the market has inflows of cash that you can in turn at any given time if you wanted to, sell your coins in a instant and get cash. So there is cash flow here, and not about the volume itself.

So in the example of the OP, if he wanted to sell his coins at $100, regardless if he has profited or not, he should get it instantly, hence liquidity.
And if we look at it, liquidity will affect volatility, hence why crypto market is being defined as like that.

[Coin_trader]

About Liquidity what I understood that is if a trader buys a coin worth $100 and later sells his coin at $90 due to bad market conditions. Here liquidity is $10.

Liquidity as the cash which you can get when you sell your assets. 10$ in your case is loss which is not part of the liquidity anymore.

• Now my question is because of liquidity does that project or coin get profited?

Only exchange profited on any price change especially on the loss which you consider on this case. The team in fact suffer some loss since their holdings decreased value too same as the holders experiencing.

• Or does the profit accrue to those who later make a profit in trading?

No again. Same as the reason above.

[Dr.Bitcoin_Strange]

About Liquidity what I understood that is if a trader buys a coin worth $100 and later sells his coin at $90 due to bad market conditions. Here liquidity is $10.

• Now my question is because of liquidity does that project or coin get profited?
  
• Or does the profit accrue to those who later make a profit in trading?

If you look at what liquidity actually stands for, then you will know that it is a word used for an asset that is either in high demand or high supply. So, the liquidity of a coin could be in a positive or negative way. For example, if you buy a coin at $100 and within a short period of time, you sell it for $120 and take a $20 profit, that means the liquidity is in a positive direction, but when you buy at $100 and sell it for $90, it means the trend is in a negative direction. Because of liquidity, your bought coin could either profit you or not, depending on the direction of the market in response to high or low volatility.

[barbara44]

About Liquidity what I understood that is if a trader buys a coin worth $100 and later sells his coin at $90 due to bad market conditions. Here liquidity is $10.

Here the loss is $10 and liquidity means how many buyers and sellers are available within a price range. For example, when you want to sell around $101 price level but you could not fine a buyer but a buyer is available around $99 means not enough liquidity. At the same time, if you can find more buyers for $101.10 or $101.20 means there are more demand and enough liquidity.

does the profit accrue to those who later make a profit in trading?

In trading, another man's loss is another man's gain. So the answer to your second question is yes. I guess that gives you a relief, not only because you already know their definition and how they work, but also because you are aware that your losses didn't totally go to waste. It's only annoying if it goes to a person who has a bad intention.

[shinratensei_]

Liquidity is just the buy orders and its depth, you want to convert your coin to USDT then you looking for the buy order to dump your coin then you get USDT that is liquidity,just for example the fact that NFT sometime called illiquid because as you know each NFT is unique entity, therefore each NFT have differing bid, an NFT that has no bid at all means the NFT is illiquid, you can bring this example to a coin, if a coin just got listed in DEX only and there's no one to provide liquidity means there's nobody that willing to trade their stablecoin or whatever it is that you trying to trade to your coin means you can't do anything about it which also translate to the coin having no liquidity.

if from your example someone is buying a coin worth of $100 later on selling it for $90 it means the $10 is just realized loss in which you just sold your asset lower than the price when you acquired that price, that $10 goes to the one who sells the coin to you earlier as a profit since the coin tanked in price.

i think investopedia has pretty neat explanation about this in simple layman terms

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.
www.investopedia.com/terms/l/liquidity.asp

[adaseb]

Liquidity has to do with how much buyers and sellers there are for a type of assets like a crypto currency. Bitcoin and Ethereum has lots of liquidity so you can sell in the millions and not affect price.

But if you own some small cap project which has a market cap of $200K and you want to sell $20K worth, then with poor liquidity you will cause the price to crash because there isn’t enough liquidity to support your market sell.

What you described just sounds like Profit or Loss of $10. And trading is zero sum so the trader on the other end got the $10 instead.

[~speedx~]

Thank you all of you who are helping me to know the right meaning liquidity actually I was in wrong think about that liquidity of a coin.
Thank you once again I am going to locked this topic to avoid unnecessary posts.