Liquidity

Liquidity indicates how easily you can buy or sell shares in a specific market without causing a sudden jump in price. It reflects the amount of money flowing through that trade.

• Higher liquidity: Typically leads to lower slippage. This allows you to enter or exit large positions quickly at a price very close to the current market rate.

• Low liquidity: Increases execution risk. In these markets, buying or selling even a small number of shares can push the price significantly against you, making it harder to trade efficiently.

Example: The "50+ bps decrease" market has $142M in volume, meaning it has high liquidity. You can trade large amounts here quickly with very little slippage (extra cost).

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FAQs

What is Liquidity in a prediction market?

Liquidity indicates how easily you can buy or sell shares in a market without causing a large price movement.

Why is Liquidity important for traders?

Higher liquidity allows traders to enter and exit positions more efficiently, with less slippage and better price stability.

What happens in high-liquidity markets?

High-liquidity markets typically have lower slippage, allowing large trades to be executed close to the current market price.

What are the risks of low-liquidity markets?

In low-liquidity markets, even small trades can move the price significantly, increasing execution risk and trading costs.

How can I identify a liquid market?

Markets with high trading volume, such as one with $142M in volume, generally indicate high liquidity and better execution conditions.