Definition ∞ Liquidity signals are market indicators that reveal the ease with which a digital asset can be bought or sold without significantly affecting its price. These signals are derived from metrics such as trading volume, bid-ask spreads, order book depth, and the presence of large market makers. Strong liquidity signals indicate a healthy and efficient market, allowing for large transactions with minimal price slippage. Conversely, weak signals suggest a shallow market prone to high volatility from relatively small trades.
Context ∞ News and analytical reports frequently reference liquidity signals when assessing the tradability and risk profile of various digital assets. Discussions often center on the impact of regulatory changes or major market events on overall market liquidity. A critical future development involves the maturation of decentralized exchanges and automated market makers, which continuously alter how liquidity is provided and measured. Robust liquidity is a key factor for attracting institutional capital and ensuring stable market operations.
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