What is liquidity?

What is liquidity and Who is liquidity provider?

What is liquidity?

The term is commonly used in financial markets and cryptocurrencies to describe the ease of converting a stock or cryptocurrency into cash. The higher the liquidity of a stock or cryptocurrency, the easier it will be to convert it into cash or other assets.
Also, in the cryptocurrency market, liquidity is the capacity of a cryptocurrency that can easily be converted into cash or other cryptocurrencies.
In accounting and financial analysis, a company’s liquidity is a measure of how easily it can meet its short-term financial obligations.

What is the liquidity pool?

Liquidity pools are a set of cryptocurrencies locked in smart contracts that provide the liquidity needed in decentralized exchanges for transactions.

Who is the liquidity provider?

A liquidity provider is a user who provides the required capital for liquidity pools in decentralized exchanges to earn money from his deposit. Decentralized exchanges use Liquidity pools to raise funds for transactions.
Instead of using the order-based trading system used in centralized exchanges, these exchanges use the liquidity in the liquidity pools to complete transactions.
There is a separate liquidity pool for each currency pairs (e.g., BTC / USDT).

What is liquidation?

A trader can use the borrowed exchange office to make more profit by trading on the margins or futures.
However, the trader must provide a guarantee (initial margin) to manage the capital and prevent the loss of the exchange when opening his trading position.
Every trading platform has the right to put the liquidation process on its agenda to protect itself from losing money.
When you open a position with leverage, its liquid price is determined automatically. If the cryptocurrency price exceeds this limit, this position will be closed automatically.
Keep in mind that the higher the leverage level, the lower the percentage change in price will lead to liquidation of the position.

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