Liquidity

Liquidity describes how easily an asset can be bought or sold without significantly moving its price. A liquid market has many buyers and sellers and tight spreads between bid and ask prices, so large orders execute close to the quoted price. An illiquid market has few participants, so even modest orders can cause noticeable price swings (slippage), and it can be harder to exit a position quickly. Liquidity can come from an exchange's order book or, in DeFi, from liquidity pools that traders and protocols draw on to execute trades.