What Is the Relationship between a Cryptocurrency’s Trading Volume and Its Potential for High Slippage?
A cryptocurrency's trading volume is inversely related to its potential for high slippage. High trading volume typically indicates high market activity and deep liquidity, meaning there are many buyers and sellers at various price levels.
This depth allows large orders to be filled without consuming all the available liquidity at the best prices, thus minimizing slippage. Conversely, low volume leads to shallow liquidity and a high risk of slippage.
Glossar
Shallow Liquidity
Condition ⎊ Shallow Liquidity describes a market condition characterized by a low volume of limit orders resting on the order book, particularly at price levels away from the best bid and ask.
Trading Volume
Liquidity ⎊ ⎊ Trading volume represents the total quantity of an asset ⎊ cryptocurrency, options contracts, or financial derivatives ⎊ bought and sold within a given timeframe, typically expressed in units or notional value.
High Trading Volume
Momentum ⎊ High trading volume in cryptocurrency derivatives, options, and financial derivatives signifies a surge in investor interest and activity, often reflecting heightened conviction regarding an asset's future price movement.
Liquidity Providers
Capital ⎊ These entities supply the necessary assets to decentralized exchanges or automated market makers to facilitate continuous trading in crypto derivatives and options.