Liquidity risk education: Why can't you sell? It's more scary if you fall

Many friends just getting into the space worry most about price drops. But actually, there's a risk scarier than price drops.

Today let's talk about liquidity risk - a risk many people don't pay attention to, but really troublesome if you encounter it.

First a true story from a friend around me.

A few years ago there was a small coin, looking like it was going up well, my friend bought some.

At first he did make some money, he was quite happy, told me this project had prospects.

Later the market turned cold, the price of this coin started dropping.

He wasn't panicked when it dropped, thought it was just temporary, hold and wait, it would come back up.

Result he waited and waited, the price didn't drop much anymore, but something more troublesome came: nobody was buying.

He wanted to sell, but put orders up for several days, not a single one filled.

Wanted to sell at a lower price, put up an even lower price, still nobody buying.

At that time he understood: price dropping you can still wait, but if you can't sell, the number on paper is just a number, can't turn into money.

That down payment for a house, originally he was going to use this money to make it up, result delayed several months.

During that time he complained to me every day, regretted not listening to my advice.

What is liquidity? Simply put is whether you can buy and sell smoothly.

Assets with good liquidity, you can buy when you want, sell when you want, price won't fluctuate heavily because of your buying or selling.

Assets with poor liquidity, can't buy when you want, can't sell when you want, or buying or selling a little causes heavy price fluctuations.

This is like selling a house. A house in the city center, you put it up, maybe people come see it in a few days, price is right it can sell quickly.

A house in the remote suburbs, you put it up, maybe nobody asks for six months, to sell you have to lower the price a lot.

This is the difference in liquidity.

Why is liquidity important? Because only assets that can be smoothly realized are real "money".

However much money it looks like on paper, can't sell it's just a number, can't use it in an emergency.

Friends just getting into the space, easily get attracted by high returns, ignore liquidity risk.

See some small coin going up fast, rush in, result want to sell can't sell, dumbfounded.

I've seen too many examples like this, really regrettable.

Having said all this, not saying you shouldn't touch small coins, but want to remind you of this risk.

If you really want to invest, also only use a tiny tiny portion of money to try, even if all lost it doesn't hurt.

Final reminder: this article talks about risk knowledge education, not investment advice.

Everyone's situation is different, risk tolerance is different. Think clearly before deciding, you bear your own risks.