A Basic Guide to Using Liquidity to Find The Best Crypto Exchanges


CoinMarketCap just made several important upgrades to the Liquidity Metric, which launched not long ago at the November 2019 The Capital conference. 

Continuous product innovation is integral to us (see the latest CEO letter). We listened carefully to the industry and user feedback collected over the past five months and have made several key changes listed in our updated methodology here.

The newly improved feature now is renamed the Liquidity Score by CoinMarketCap. With this change, we hope to enable all our users to quickly identify the best crypto exchange and markets to trade on, with the smallest execution costs.

Why should I care about liquidity?

If you plan to trade (i.e. buy or sell) any cryptocurrency, or are already doing so, you will want to get the best prices possible.

However,  there is this thing in trading cryptocurrencies called slippage that can hold you back from getting the best prices and cause you to lose money. Slippage happens when the price you expected and the price you got are different.

If you know how to find the most liquid exchange or market, you can keep your losses (i.e. slippage) down, even if you are in a hurry to trade.

What does slippage look like in an illiquid market versus in a liquid market?

To take it back to basics, our team created an illustrated example using apples:

In an illiquid market, Alice the pie-maker, who needs apples urgently, receives offers from two sellers. One seller offers one apple for a low price of $1. The second seller has three apples to sell for $1.50 each. Because Alice needs a total of three apples, the best outcome for her is to get: 

One $1 apple + Two $1.50 apples = $4.00.

Divided equally, this equates to $1.33 per apple, which is a slippage of $0.33 from the best price (i.e. $1 for an apple).

Now transport Alice to a liquid market, and she ends up with a slippage that can be many times cheaper! Here is why. In a liquid market, there are more sellers and that usually brings about more competitive offers. 

In this scenario of a liquid market, Alice could get:

One $1 apple + One $1.01 apple + One $1.05 apple = $3.06

Divided equally, this equates to $1.02 per apple, which is a slippage of $0.02 from the best price (i.e. $1 for an apple). 

Now compare the slippages in the two difference scenarios:

Illiquid market slippage versus liquid market slippage

$0.33 ÷ $0.02 = 16.5

Alice’s slippage losses in a liquid market is easily more than 10 times less!

So how do I compare and find the most liquid exchanges to buy or sell cryptocurrencies?

The newly improved Liquidity Score by CoinMarketCap does that for you! There are two ways you can use our tool:

To quickly search for the most liquid exchanges, simply go to our Top 100 Exchanges by Liquidity page

To quick search for the most liquid market pairs or trading pairs for a specific cryptocurrency, go to our home page:

Step 1: Search for your cryptocurrency or cryptoasset in the search bar located on the top right corner.

Step 2: You will be taken to the respective coin detail page. There, click on the second tab called “Market Pairs.”

Step 3: You will see a ranking table. Simply click on the column called “Liquidity” and sort by descending order. The higher the Liquidity Score, the more liquid the market pair is!

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