An important factor in investing in digital currencies: high liquidity

When investing in any investment product, investors want the price to be as low as possible when buying it and the price as high as possible when selling it, so that the investment will be profitable and the investment product will have investment value.

In fact, in addition to the price, another point is also very important: that is, when investors sell their investment products, they can sell them at the price closest to the market as quickly as possible .

Take an example of a traditional investment market, such as A shares. Suppose that investors have 10,000 shares of Vanke A (shares listed by Shenzhen real estate company Vanke) and want to sell them all at the opening on April 7. If the market price at that time was 26.7 RMB, when the investor sold the 10,000 shares, the transaction time may be only a few minutes, and the transaction speed is satisfactory; the average transaction price may be around 26.6 RMB, which is different from the market price of 26.7 Not big.

But if in another investment market, such as the digital currency market, then the situation may be completely different.

If we hold a digital currency with a market capitalization ranking around 500, its market price is $ 2.7. We hold 10,000 coins and want to sell them all in the market. As a result, when we sold 10,000 of them, the transaction time might take a long time. Even if the transaction was finalized, the price was indeed $ 1.50, which is nearly 44% lower than the market price.

Why is this happening? This involves a very important indicator in the investment market: the liquidity of investment goods .

The so-called "liquidity of investment products" refers to the ease with which an investment product can be bought and sold quickly without affecting its market price.

It contains two elements: one is the transaction time; the other is the transaction price.

The shorter the transaction time and the closer the transaction price to the market price, the better the liquidity of the investment product. The investment value of an investment product with better liquidity is also greater. As an investor, the liquidity of an investment product is one of the key elements of our choice of investment target.

In addition to stocks in daily life, the most familiar investment product is real estate. A slightly decent two-bedroom apartment in a first-tier city costs RMB 5-6 million. It is almost impossible for such a house to be listed today and sold tomorrow. Usually, it takes at least 1 month or more for a house to be sold .

Therefore, compared to selling a stock in the stock market, the transaction time is less than a few minutes, the real estate transaction time is much longer, and its liquidity is much worse.

For investment products with poor liquidity that want to be traded as soon as possible, sellers can often only cut prices sharply, much lower than the market price, in order to attract buyers to take over.

The example of digital currency investment above is a case. For a coin ranked around 500, its liquidity is not good, so when the seller wants to sell a large amount, if he wants to complete the transaction as soon as possible, he has to lower the price to attract buyers.

Otherwise, selling at market prices, no one is willing to buy, this is what we often say "there is no market", there is a market price, but no one is willing to buy at the market price.

What factors affect the liquidity of an investment product? There are many factors here. For our convenience, we can compare different investment products in the same investment market.

Let's take the digital currency market as an example. In this market, investment products with better liquidity tend to have higher market value and higher consensus in the eyes of investors .

The website is ranked by the market value of digital currencies, and this ranking basically reflects the liquidity of digital currencies. For ordinary investors, when we invest in digital currency, we must choose a good liquidity species, so that when we buy and sell digital currency, we can realize it as soon as possible.

We carefully observe its ranking. Basically, most of the top rankings are highly recognized mainstream coins, and their liquidity is much better than other currencies . This is one of the reasons why we advocate investors to buy mainstream currency.