Liquidity generally refers to the ease with which an asset can be exchanged for cash without affecting the price of that asset.
This definition has two aspects to it: ease (speed and effort required) and price (slippage, or the difference between the expected price and executed price, on a large order). When considering liquidity within the context of crypto exchanges, both components are critical — a trader needs to have transactions completed as quickly and cost effectively as possible.
Beyond liquidity for a specific asset, we also talk about market liquidity, which deals with the health of the overall market, such as a city’s real estate market or the crypto market. A liquid market is one in which assets can be easily bought and sold at stable, transparent prices.