Explained: What Are Liquidity Pools?
2024-09-11
The Role of Crypto Liquidity Pools in Trading
Crypto liquidity pools play an essential role in the ecosystem of spot and futures trading, in particular when it comes to centralized exchanges (CEX). Liquidity pools provide much-needed liquidity, speed, and convenience to the CeFi and DeFi ecosystem. The more liquidity the pool has, the easier your trading becomes on crypto exchanges.
Why Are Crypto Liquidity Pools Important?
Any seasoned trader in traditional or crypto markets can tell you about the potential downsides of entering a market with little liquidity. Whether it’s a low-cap cryptocurrency or penny stock, slippage will be a concern when trying to enter or exit any trade. Slippage is the difference between the expected price of a trade and the price at which it is executed. Slippage is most common during periods of higher market volatility and it can also occur when a large order is filled but there isn't enough volume at the selected price to maintain the bid-ask-price.
This market order price that is used in times of high volatility or low volume in a traditional order book model is determined by the bid-ask spread of the order book for a given trading pair. This means it’s the middle point between what sellers are willing to sell the asset for and the price at which buyers are willing to purchase it. However, low liquidity can incur more slippage and the executed trading price can far exceed the original market order price, depending on the bid-ask spread for the asset at any given time.
In light of the trading issues and stress mentioned above, Toobit has proudly kicked off “Zero Slippage Guarantee” trading campaign to cover your back no matter how the market moves. During this special event, we’ll cover all slippage losses on your trades, so you can focus on winning without worrying about market volatility. Dive in now and enjoy smooth trading like never before.
Final Words
With various reputable CEXes out there in the market, Toobit trading mechanism works for you while sourcing for the best rates across multiple CEXes. You can be sure that Toobit spot and futures trading always gives you the best rates available and optimizes your ventures into crypto trading.