Liquidity
When traders call a market liquid, what do they mean, and how much can this data really show?
In plain words
Liquidity is how much size can trade near the current price without pushing the price away. A deep market absorbs large orders with little price change; a thin one moves quickly. Volume, the amount traded, is related but is not the same thing as depth.
Why it matters
Position sizes and expected slippage depend on it. A market can print very heavy volume and still travel a long way, because volume counts trades that completed, while depth is the size resting at each price waiting to absorb them.
In a real week: BTC, week of 16 November 2020
In the week of 16 November 2020, BTC's dollar volume reached 12.19bn, labelled 2.4 times its prior 12-week average and above it. Even so, the week's range was 19.55% and the largest 1-hour move was -4.06% at 05:00 UTC on Wednesday 18 November. High turnover came with large price travel, a reminder that this data measures activity, not the resting orders that would have absorbed size.
A common mistake
Treating high volume as proof of a deep market. Volume records what changed hands; depth is what is waiting to trade. One can be high while the other is thin in the same week.