Cryptocurrencies are a digital asset that allows people to exchange value without having to trust central authorities. Instead, transactions are verified peer-to-peer through a network that records data in shared public ledgers called blockchains. Like traditional assets, cryptocurrencies have prices that can go up or down. Some people buy cryptocurrencies to make a profit or invest in them because they believe that these assets could become more valuable. Others use them as a form of payment.
Buying and selling cryptocurrencies is done on exchanges. Some exchanges offer margin trading, which means that you only need to put up a small percentage of the full value of your position – known as leverage – to gain access to the entire market. This magnifies your profits and losses, so it’s important to understand the risks before you trade.
Liquidity
A thriving cryptocurrency marketplace requires a level of liquidity, or the number of buyers and sellers in the market. When there is low liquidity, it can be challenging for market participants – let’s call them Alice and Bob – to find each other. A skilled market maker like Charlie can help bridge this gap by strategically managing buy and sell orders to enhance the asset’s market depth. This may help reduce slippage and improve market appeal, which can boost token adoption.