How Does Liquidity Work with Cryptocurrencies?

B2Broker | B2BX
Jul 12, 2018 · 3 min read

Liquidity is a concept that is important to understand when dealing with cryptocurrencies. In terms of defining liquidity, it is essentially the ability of an asset to be quickly converted into cash. In the context of cryptocurrency liquidity it refers to the ease in which a coin can be converted into cash or other coins.

Why Liquidity is Important

High liquidity in the marketplace is an ideal situation as it makes for improved prices for all concerned due to the large number of buyers and sellers in the marketplace. A buoyant marketplace with a high level of trading activity tends to create an equilibrium market price that is acceptable for all.

High liquidity also ensures that prices are stable and not prone to large swings resulting from large trades which could affect cryptocurrency prices while fuelling increased volatility and risks for the general market. In a liquid market, prices are stable enough to withstand large orders because of the large number of market participants and their orders.

High liquidity also allows for greater technical analysis accuracy since price and charting formation in a liquid market is more developed and precise.

Factors Affecting Liquidity

One of the key factors affecting liquidity in the cryptocurrency market is trading volumes. You can check out any cryptocurrency market cap rankings website to see daily volumes, with a higher volume indicating that more people are buying and selling coins. Inadequate knowledge and clear-cut guidelines by authorities has so far limited these activities mainly to enthusiasts but interest in bitcoin trading and cryptocurrency trading in general is attracting more and more people to get started.

A higher number of cryptocurrency exchanges provides more opportunities for more people to trade their coins and in recent years the number of exchanges has multiplied. The increase in frequency and volume of trading helps to enhance liquidity.

Usability is another factor affecting liquidity. The more cryptocurrencies are used as a medium of payment, the more liquid they become. This is why it is important for cryptocurrencies to be accepted by merchants as a means of payment, so as to further boost the use of cryptocurrencies for transactions.

Finally, regulations play an important role. Different countries have adopted different stances on cryptocurrencies with them being banned in several, allowed in some or disputed in others. Despite the situation, cryptocurrencies are growing at a fast pace, so a clear stance by the authorities on issues like consumer protection and taxation should result in more people getting involved thereby affecting its liquidity.

Choosing B2Broker For Crypto Liquidity

With the growth in popularity of cryptocurrency trading, the demand for liquidity has become very apparent with many brokers wanting to take advantage of this new niche in the market. B2Broker has emerged as one of the leading providers of cryptocurrency liquidity in the industry enabling liquidity to many major, as well as smaller forex brokers and several exchanges.

The cryptocurrency liquidity service from B2Broker is a promising and easy-to-implement solution for brokers. We offer multi-connectivity cross connection to 6 different trading platforms: MT4, MT5, One Zero, Prime XM, Integral and B2Trader and can connect, via Fix API, Rest API, Socket API, to any system. Liquidity can be delivered to any trading system, CFD liquidity to any trader, cash liquidity, cash trading and OTC deals. Furthermore, brokers can be connected into our liquidity pool in just 5 minutes.

Learn more about our liquidity service in the following compilation of “The Best Liquidity Providers”.

    B2Broker | B2BX

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