What is the Volume / Market cap ratio?
The volume / market cap ratio is another useful indicator for making your investment decisions. This ratio tells you how liquid a cryptocurrency is. Read further to understand why that is >>
The volume / market cap ratio is calculated by dividing a coin's 24-hour trading volume by its market cap.
The outcome has to be higher than 0.001 to appear in the ‘first tier’ of our ranking list. (Learn more about tiers and how we rank coins in this article.)
What is high liquidity?
A high volume / market cap ratio means high liquidity. Simply put, that means a cryptocurrency can be easily bought or sold on an exchange, close to its value. This usually results in a more stable market with few fluctuations in price. When a coin’s price goes extremely up and down, it’s called volatile. Some traders try to make profits because of volatility. You know, like ‘buying the dip’. But usually, volatility is associated with uncertainty and loss.
What does a low volume / market cap ratio mean?
When a coin has a low volume / market cap ratio, we warn you by showing the ‘low’ label. We explained that a high ratio tells you a coin is liquid, indicating a more stable market. So when you see a low ratio, be aware that this coin is most likely less stable since it has low liquidity.
Therefore, in case of low liquidity, slippage may occur. Slippage is the difference between an expected price of a coin and the price when the order actually executes. If you want to know more about slippage, check out Investopedia.
All together, try to keep in mind that a low volume / market cap ratio usually tells you it’s riskier to invest in a coin since it’s harder to sell or buy.