Understanding Liquidity and its Importance

Liquidity is a crucial factor which affects the tendency of an asset to be sold and liquidated. Every bond, stock and digital currency needs to have a market for immediate settlement or to channelize the buy and sell mechanism. As the number of cryptocurrencies is growing, so is the crypto market. But not all cryptocurrency exchanges can capture a large customer base.

There is a need to acknowledge the importance of liquidity for crypto exchanges and traders. As more liquid the exchange would be, more customers would be attracted to it.

The importance of liquidity — while indulging in white label crypto-exchange software development or building a new crypto exchange from scratch — can be highlighted under two main divisions:

  • Fairtrade prices- When an adequate number of crypto investors or traders are present in the crypto exchange, then there are increased chances that fair prices would be maintained in the system. This is due to the factor that for every asking price there would be a bid price and vice-a-versa. Thus, liquidity would be efficiently maintained and pricing would also remain at standardized rates.
  • Stability of market- Due to the volatility in the pricing of cryptocurrencies, majorly bitcoin, the market has become more unstable and variable. Regular fluctuations in the pricing affect the reliability of crypto assets. Thus, with efficient liquidity in a crypto exchange, the manipulation in pricing could be controlled and stability in functionality would be experienced.

Despite knowing the benefits of liquidity, many businesses overlook the need to implement high-liquidity options during white label crypto exchange development or building a custom exchange from ground zero. Let us explore what could be the possible reasons for illiquidity in the market.

The increasing number of cryptocurrency exchange platforms is one of the reasons for low liquidity on exchange platforms. This situation does not allow participants to exit the market at the right time. Let us understand some more factors that describe the problem of liquidity.

  • Long term investment: The market of crypto assets is still at a small-scale. Traders or investors come with a motive to invest for a longer time as they do not have enough options to trade regularly in crypto assets. But in today’s time, the trend is changing and newer white label crypto exchange development is bringing more and more options of trading and investing.
  • Profitability expectations: Crypto owners are not regularly trading in crypto assets. They are of the view that they would buy the crypto assets and hold them for a longer period till their prices elevate. So even in this situation, liquidity in affected.
  • Limited crypto pairs: It has been reported that crypto investors claim about the lack of crypto pairs being offered to them for trading. It directly hinders the trading options in the crypto exchanges.

Many avenues of active trading and investing have been opened up to invite more enhanced characters of trading. Other means to resolve the problem of liquidity include:

  • Listing of cryptocurrencies: A crypto exchange needs to decide upon the number of crypto assets to be listed in the exchange software. While choosing the cryptocurrencies, it is beneficial to consider trading trends and future predictions of currencies. With an enhanced portfolio of listed cryptocurrencies, your exchange is more likely to acquire more users.
  • Adding of payment streams: For facilitating a trade, you need to have more versions of payment streams with exchange platforms. Different streams may be added up such as wallet service, credit card, debit card or crowdfunding etc.
  • Access to multiple order books: Crypto traders and investors should try to get listed in more than one exchange and trade through these multiple exchanges. Such format maintains the liquidity in several exchanges and also in the overall crypto ecosystem.
  • Insertion of advance trading features: Modern trading features which are quite popular in traditional exchanges are also being implemented in the crypto exchanges. The features of stop order and limit order increases the probability of an investor to trade as it satisfies his earning prospective. It emerges as an option to enable investors to buy and sell the stock at a specific price and boost profitability.
  • Intuitive interface: A user-friendly interface of web and mobile devices provides a smooth experience to crypto investors. When the screen moves smoothly, it facilitates an easy buy and sells an experience that even prompts them to trade again.

The liquidity of a crypto exchange can be definitely enhanced with the implementation of more trading features. A feature-rich cryptocurrency exchange reinforced with full security and modern UI enables the crypto investors to trade frequently. The ease of crypto trading will encourage more circulation of cryptocurrencies and thus maintaining a stable and liquid environment.

If you are planning to build your crypto exchange, Antier can help. Whether it is white label crypto exchange development or you want to build a custom exchange from ground zero, we fortify your exchange with high-liquidity options and industry-leading features to achieve world-class security and performance.

View a free demo of our white label exchange underpinned by advanced features, or connect with our subject matter experts to discuss your need for a custom crypto exchange.

DeFi, Crypto banking, White label cryptocurrency exchange development, Crypto wallet development, coin development, fintech, Blockchain