Exchange Liquidity Risk

Definition ∞ Exchange liquidity risk refers to the potential inability of a cryptocurrency exchange to facilitate trades without significant price impact. This risk arises when there is insufficient trading volume or depth in order books for a particular digital asset, making it difficult for users to buy or sell large quantities quickly at stable prices. High liquidity risk can lead to increased slippage, wider bid-ask spreads, and even a temporary suspension of trading during periods of market stress. It is a key consideration for traders and investors assessing the operational health and reliability of a platform.
Context ∞ Exchange liquidity risk is a recurring topic in crypto news, especially during periods of market volatility or after significant platform incidents. Current discussions often center on regulatory measures to improve transparency regarding exchange reserves and trading volumes. A critical future development involves the implementation of more robust market surveillance and risk management frameworks to safeguard user funds and market stability.