← Reading the Chart · lesson 9 of 10
By the end of this one you'll know what liquidity and spread mean and why a busy market gives a fairer price than a sleepy one.
Two words tonight, and they explain a mystery that trips up every single beginner. Liquidity means how easy it is to buy or sell something quickly without moving the price, and spread is the gap between what buyers are offering and what sellers are asking. Think about selling a horse. At the big county auction there are a hundred buyers in the stands, so the highest offer and the lowest asking price sit close together, and you get a fair number in minutes. Now try selling that same horse with a cardboard sign at the end of your driveway: one buyer stops by a week, and he offers way under what you're asking, so you either take his low number or you wait. The auction is a liquid market with a tight spread, and the driveway is a thin market with a wide one. Prices on a screen work exactly the same way, and the busier the market, the closer the price you see is to the price you actually get.
Same lesson, told by a hundred dollar bill. Tap to walk it one step at a time.
In this example, $100 goes into a big busy coin where buyers and sellers sit a nickel apart, so turning right around and selling gets back about $99.
95, the crowd was thick and the gap was thin.
The same $100 goes into a tiny sleepy coin where buyers are offering $97 and sellers are asking $100.
The buy fills at $100, but the best offer to buy it back is $97, so walking straight back out leaves about $97.
Nobody stole a thing, the crowd was just small and the gap was wide.
The school fundraiser order is due Friday and you're $60 short of what the kids signed up to sell. Then you remember the tiny coin you picked up last spring, sitting in the app showing $75.
Pick your move. Then peek at the other roads if you're curious.
Liquidity is how many real buyers are standing there when you want out, and in a quiet market the price on the screen and the price in your hand can be two different numbers.