Two parts: spread and depth
Liquidity has two components. The spread is the gap between the best bid and ask — the cost to cross the book right now. Depth is how much size rests near the price. A tight spread with deep size means you can trade size cheaply; a wide spread over a thin book means even a modest order pays up and moves the market.
spreadBps = (ask − bid) / mid × 10000 The round-trip cost of crossing, normalized so you can compare a $0.01 spread on a cheap perp with a $50 spread on BTC. Pair it with depth and with Kyle’s lambda — price move per unit of flow — to judge true impact.
Why it matters
Liquidity decides your slippage and your impact, and it is where risk hides. Thin markets gap violently on news. And the most obvious price levels — round numbers, swing highs and lows — are exactly where stops cluster, which means your resting liquidity is someone else’s target. Reading liquidity is half of reading order flow.
vyx computes the spread, the resting depth across ten book buckets, and Kyle’s lambda for every market it tracks — so a thin book, a widening spread, or a fragile market shows up across the field, not one chart at a time. Liquidity is a first-class thing to scan for, not an afterthought.
- 1 A small-cap perp has a wide spread and a thin book.
- 2 A modest market order clears several levels and the price jumps — high impact, real slippage.
- 3 The same size on BTC, with a tight spread and deep liquidity, barely moves it.
Further reading
Related
FAQ
What does liquidity mean in trading?
Liquidity is the ease of buying or selling size without moving the price. It is set by the spread (the cost to cross) and the depth (the resting orders near price). High liquidity means low slippage; low liquidity means a small order can move the market.
What is the difference between a liquid and an illiquid market?
A liquid market has a tight spread, a deep book, and low slippage, so large trades barely move it. An illiquid market has a wide spread and a thin book, so even small orders cause sharp, sometimes violent, price moves.
How do you measure liquidity?
With three readings: the bid-ask spread (in basis points), order-book depth within a price band, and price impact per unit of volume — Kyle’s lambda. Together they say how much size a market can absorb and at what cost.
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