In short

Liquidity affects how easily you can enter or exit without moving the price against yourself.

01

A liquid market usually has more available orders near the current price. A thin market has fewer orders, so even a modest trade can move the execution price or create a larger spread.

02

Low liquidity makes market orders, stops, and liquidations more exposed to slippage. It can also make a backtested or chart-based result look better than the live execution would have been.

03

Check volume, spread, order-book depth, and the venue’s trading hours before using a market. The largest available leverage is not evidence that the market can safely support large size.