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A Basic Guide to Using Liquidity to Find the Best Crypto Exchanges

CoinMarketCap just made several important upgrades to the Liquidity Metric, which launched not long ago at the November 2019 The Capital conference. 

Continuous product innovation is integral to us (see the latest CEO letter). We listened carefully to the industry and user feedback collected over the past five months and have made several key changes listed in our updated methodology here.

The newly improved feature now is renamed the Liquidity Score by CoinMarketCap. With this change, we hope to enable all our users to quickly identify the best crypto exchanges and markets to trade on, with the smallest execution costs.

Why Should I Care About Liquidity?

If you plan to trade (i.e. buy or sell) any cryptocurrency, or are already doing so, you will want to get the best prices possible.

However, there is this thing to look out for when trading called slippage that can hold you back from getting the best prices and cause you to lose money. Slippage happens when the price you expected and the price you actually got for your trader are different.

If you know how to find the most liquid exchange or market, you can keep your losses (i.e. slippage) down, even if you are in a hurry to trade.

What Does Slippage Look Like in an Illiquid vs. Liquid Market?

To take it back to basics, our team created an illustrated example using apples:

In an illiquid market, Alice the pie-maker, who needs apples urgently, receives offers from two sellers. One seller offers one apple for a low price of $1. The second seller has three apples to sell for $1.50 each. Because Alice needs a total of three apples, the best outcome for her is to get: 

One $1 apple + Two $1.50 apples = $4.00.

Divided equally, this equates to $1.33 per apple, which is a slippage of $0.33 from the best price (i.e. $1 for an apple).

Now transport Alice to a liquid market, and she ends up with a slippage that can be many times cheaper! Here is why. In a liquid market, there are more sellers, which usually brings about more competitive offers. 

In this liquid market scenario, Alice could get:

One $1 apple + One $1.01 apple + One $1.05 apple = $3.06

Divided equally, this equates to $1.02 per apple, which is a slippage of $0.02 from the best price (i.e. $1 for an apple). 

Now compare the slippage in the two difference scenarios:

Illiquid market slippage vs. liquid market slippage

$0.33 ÷ $0.02 = 16.5

Alice’s slippage losses in a liquid market is easily more than 10 times less!

So How Do I Compare and Find the Most Liquid Exchanges to Buy or Sell Cryptocurrencies?

The newly improved Liquidity Score by CoinMarketCap does that for you! To quick search for the most liquid market pairs or trading pairs for a specific cryptocurrency, go to our home page:

Step 1: Search for your cryptocurrency or cryptoasset in the search bar located on the top right corner.

Step 2: You will be taken to the respective coin detail page. There, click on the second tab called “Market Pairs.”

Step 3: You will see a ranking table. Simply click on the column called “Liquidity” and sort by descending order. The higher the Liquidity Score, the more liquid the market pair is!

We hope you find this useful in your crypto journey! We even have an infographic on this that you can download below.

If you would like to read more in-depth into this topic and understand the backstory into why and how CoinMarketCap designed its Liquidity Score, click here!


Download our infographic

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