I’ll go over How to Fix Insufficient Liquidity for This Trade in this post, along with the reasons why this mistake occurs in the stock, FX, and cryptocurrency markets.
You will discover useful strategies to guarantee more seamless trade execution and efficiently reduce losses, such as lowering order size, assessing market depth, modifying slippage, and selecting high-liquidity platforms.
Understanding Liquidity in Financial Markets
In financial markets, liquidity is the ease with which an asset can be purchased or sold without materially altering its price. Due to its large trading volume, tight bid-ask gaps, and numerous active buyers and sellers, a highly liquid market enables trades to go swiftly and at steady prices.
On the other hand, insufficient liquidity results in greater price volatility, broader spreads, and fewer participants. Market depth, order book activity, and total demand all affect liquidity. While tiny tokens or micro-cap stocks sometimes have little trading activity and higher slippage risks, major assets like Bitcoin or Apple Inc. shares usually have substantial liquidity.
How to Fix Insufficient Liquidity for This Trade
Example: How to Solve the Insufficient Liquidity Problem (Step by Step)
Situation:
You want to swap a low-volume token to USDT on Uniswap and you get the error: “Insufficient Liquidity for This Trade.”
Step 1: Assess the Liquidity Pool
Check the token pair page and see how much total liquidity there is in the pool. For instance, if the pool has a total liquidity of $20,000, a big trade would be more than the available depth.
Step 2: Trade Smaller Amount
Let’s say you want to swap $5,000 worth of tokens, bring it down to $1,000. When the pool has less liquidity, big orders get more likely to be triggered.
Step 3: Order Splitting
Instead of making a single large swap, you should make a bunch of small ones. This way you will reduce price impact and improve chances of the swap being executed.
Step 4: Slippage Tolerance Modification
You should set a greater (but still small) slippage to improve chances of making the trade. This means you should trade at a greater slippage.
Step 5: Trade More Liquid Tokens
Try to swap the token to ETH, then change ETH to USDT. In some cases, certain token trade pairs provide more liquidity.
Step 6: Try Another Exchange
Look at centralized exchanges such as Binance or Coinbase where the trading pair might have more volume.
Step 7: Trade at Peak Hours
Place trades when the market is most active. Trading volume means better liquidity and more seamless execution of orders.
Practical Ways to Fix Insufficient Liquidity
Lower Your Trading Volume
Large trading volumes may go beyond the existing market depth. Therefore, if you reduce your trading volume, you will have a higher probability of being able to execute the trade without running into liquidity problems.
Fragment Large Orders Into Smaller Ones
Instead of making a single, large trade, try making a number of smaller trades. This way, you will minimize price impact, and the chances of your trades being unsuccessful will be minimized.
Opt for Limit Orders over Market Orders
Market orders will be executed immediately, but they may also be unsuccessful if there is low liquidity. On the other hand, limit orders allow you to set a particular price, and you will be able to wait for the buyers and sellers to match the price you set.
Opt for a More Liquid Trading Pair
Some trading pairs will have more volume than others. Therefore, try to find a trading pair that has a larger trading volume in the past 24 hours in order to minimize execution problems.
Choose the Right Trading Session
The more traders that are online, the more liquid the market. Therefore, liquidity will be enhanced, and execution speed will improve when large volumes are traded.
Increase Your Slippage Tolerance
If you are a user of a decentralized exchange, in order to increase the chances of your order going through, some users find that increasing their slippage tolerance a bit will allow the order to go through. However, be cautious, as you could end up with a price that is not what you intended.
Use a More Liquid Exchange
Generally, more popular exchanges will have more liquidity than others. Therefore, more orders that are on the books, and the trading will be executed and completed more efficiently than those that are liquid.
Analyze Order Book Depth Prior to Trading
Assess the bid and ask volumes to determine the presence of buyers and sellers at your target price.
Stay Away from Tokens or Pairs with Low Trading Volume
Newly launched or micro-cap tokens typically present poor liquidity, heightening the likelihood of slippage and the unsuccessful execution of a trade.
Look Into Arbitrage Opportunities Across Platforms
In some cases, another exchange may offer superior liquidity for the identical asset. Therefore, analyze different platforms before making large trades.
Platform-Specific Solutions
Modify Slippage Settings on DEX Platforms
For DEX platforms like Uniswap or PancakeSwap, you can improve your chances of an order executing by increasing the potential slippage tolerance, like setting it from 0.5% to 1% – 2%. You want to avoid increasing it 5% or more, since this could result in you being sold orders for a lower price that you do not want. However, for small price fluctuations, your order will execute.
Utilize Multi-Route Swapping via DEX Aggregators
For the DEX aggregator, 1inch, your order is automatically split in order to execute on more than one active liquidity pool. This will enhance the probability of your order executing by clearing the pool, as well as reducing the chances of you facing an insufficient liquidity problem.
Choose Different Trading Pairs on CEX
When trading on a CEX platform (like Binance or Coinbase), it is better to choose trading pairs that contain BTC (for example BTC/USDT) rather than trading pairs that contain less popular altcoins. This is because BTC trading pairs tend to have a higher volume of liquidity than the lesser-known altcoins, thus providing you with a better trading experience.
Use Limit Orders Instead of Market Orders
Trading on CEX platforms at market price is usually not advisable, since you could incur heavy slippage, as well as your order not being executed. Therefore, it is better to set your limit order in order to not incur such slippage, as your order will only execute when your requirements of sufficient liquidity have been met.
Trade Outside of Low Volume Hours
When trading, it is advisable to avoid trading at a time when the market is likely to have a lower volume. This usually happens because the markets of the USA and European countries do not have an overlap. This will enhance your trade to be executed quickly as well as removing the gap between sells and buys in the order book.
Provide Liquidity in DeFi Pools
In DeFi pools on platforms such as Curve Finance, you can stake your assets. This can eliminate your liquidity issues, which will benefit your trades. In return, you will be compensated in the form of transaction fees.
Risks of Trading in Low-Liquidity Markets
High Slippage
Trades may execute at worse prices than what traders would expect in low liquidity markets. Traders expect a sell trade to execute at a sell order, while a buy trade would execute at a buy order. However, due to the large price gaps between buy orders and sell orders, these trades will most likely execute at worse than expected prices leading to smaller profits or even losses.
Wide Bid-Ask Spread
If there is low trading activity, the difference between the highest bid and the lowest ask increases. This increases the costs associated with making a trade, and especially for short trades, the profitability of a trade is significantly decreased.
Price Manipulation Risk
Order books that trade thin will be easier to manipulate for large traders or so-called whales. A single large order is able to shift the market significantly in either direction.
Order Execution Delays
If there aren’t enough buyers or sellers at the price you’ve set, your order may remain unfilled for a while. This can lead to missed opportunities.
Higher Volatility
Markets with low liquidity experience extreme and sudden price fluctuations more frequently compared to markets with higher liquidity. Sharp price movements can be caused by even a small trade.
Increased Risk of Trade Failure
On some DeFi platforms, like Uniswap, if there isn’t enough pool depth then there will be a higher chance that a trade will fail, which will cause you to waste time and gas.
Difficulty Exiting Positions
If you are trying to sell your asset, you may find it hard to do so without significantly lowering the price. This is especially true for markets that are in a downtrend.
Increased Risk of Capital Loss
Due to the unpredictable nature of pricing within markets with low liquidity, traders incur a greater risk of unforeseen losses than they would in more liquid markets, such as Binance.
Preventive Strategies for Future Trades
Always Check 24-Hour Trading Volume
Review how much volume has traded for the day. Higher volume means higher liquidity and execution of orders will go smoother.
Analyze Order Book Depth
Check how many buy and sell orders there are at various levels. A deep order book means lower slippage and fewer failed trades.
Choose High-Liquidity Exchanges
Use liquid markets with a lot of participants. Good liquidity is present on exchanges like Binance or Kraken due to their large number of traders and market makers.
Avoid Micro-Cap or Newly Launched Tokens
Newly launched tokens or low market cap tokens may have low liquidity. If a token has low liquidity, it is better to wait for the trading volume to increase to have less execution risk.
Use Limit Orders for Better Control
Using Limit Orders will allow you to control the price of your order and protect yourself against slippage.
Break Large Trades Into Smaller Parts
Instead of placing one large order, execute multiple smaller orders to have less impact on the market.
Monitor Market Activity During Peak Hours
More people mean more market participants. Higher liquidity in the market causes tighter spreads. Trade during peak trading hours.
Diversify Trading Platforms
Maintain accounts on multiple exchanges so you can quickly switch if one platform has low liquidity.
Monitor Changes in Liquidity Over Time
Some assets are more liquid in bullish trends and less liquid in bearish trends. Be aware of how liquidity shifts across market cycles.
Have Exit Plans Before Entering the Position
Think about how simple it will be to exit a position before you open it. Make certain that the asset will have enough liquidity to support your exit.
Common Causes of Insufficient Liquidity
Low Daily Trading Volume
If there are not enough buyers and sellers in the market due to low daily trading volume, the order depth will be even less and the instances of issues executing the trade will be higher.
Market Order Larger Than Available Liquidity
If the trade will be a market order and will exceed a specified price level order, the market won’t have enough liquidity to fill it. This is also known as a lack of available liquidity.
Order Book Liquidity
If the order book is shallow, it will have fewer and less valuable buy and sell orders in close proximity to the market price. This results in quicker slippage and increased chances of partial fills.
Time Of Day
There is a natural decrease in liquidity at times of the week (e.g. weekends), and times of the day when global markets do not overlap. This is most prominent in the crypto and forex markets.
Trading Pair Illiquidity
More exotic trading pairs, like specific altcoin pairs, will have a higher incidence of liquidity errors as compared to BTC/USDT trading pairs.
Market Order Gaps
Due to the market sentiment during rapid price change, the liquidity available to the market is often reduced as traders are more likely to cancel orders or to not place new orders.
Liquidity Of Newly Issued Tokens
A common practice for new tokens on Uniswap is to provide liquidity in a limited range to make it so that large trades are not possible.
DeFi Pools Have Low Total Value Locked (TVL)
Due to a lack of money in liquidity pools, decentralized exchanges may not be able to complete a swap.
Whale Behavior / Market Manipulation
Big investors are able to remove liquidity and, by putting big orders on one side, they can distort the order book and make trades execute in a way that they want.
Conclusion
Insufficient liquidity errors mean that there are not enough buyers or sellers available to execute your trade at the price you want. The first step towards fixing this problem is learning about the different layers of the market, the volume of the market, and the size of the orders.
Some of the best low liquidity trade fixes include: reducing size of trades, breaking large orders into smaller orders, setting limit orders, and trading in peak hours. Some trading platforms like Binace offer better liquidity than others and can make your trade easier, along with liquidity aggregators like 1inch.
With adequate trade planning and liquidity checks, you can eliminate slippage, avoid trades failing, and be more efficient in your trading whether in centralized trades or decentralized trades.
FAQ
What does “Insufficient Liquidity for This Trade” mean?
It means there are not enough buy or sell orders in the market (or liquidity pool) to complete your trade at the selected price and size. This often happens in low-volume or small-cap assets.
Why does this error happen on decentralized exchanges?
On platforms like Uniswap, trades rely on liquidity pools funded by users. If the pool does not have enough tokens to support your swap, the transaction fails.
How can I fix insufficient liquidity quickly?
You can reduce your trade size, split the order into smaller parts, increase slippage tolerance slightly (for DEX trades), or switch to a more liquid trading pair.
Is low liquidity always bad?
Not always. Some traders target low-liquidity markets for higher volatility and potential gains. However, it comes with higher risk, slippage, and price manipulation.
