Fragile liquidity describes a market condition where an asset cannot be easily bought or sold without causing a significant price change. This state is characterized by shallow order books, wide bid-ask spreads, and limited market depth. It indicates a scarcity of willing buyers and sellers, making the asset susceptible to large price swings. Such conditions present heightened trading risks.
Context
News articles in the digital asset sector frequently discuss fragile liquidity, particularly during periods of market stress or for less widely traded cryptocurrencies. This condition makes assets vulnerable to substantial price movements from relatively small trades, posing risks for investors and overall market stability. Regulatory bodies monitor fragile liquidity as a potential source of systemic risk.
The crypto market experienced a significant downturn as over $2 billion in leveraged positions were liquidated, causing major asset prices to fall sharply.
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