Trading in the cryptocurrency (and most financial) markets happens in what’s called a continuous double auction with an open order book on an exchange. That’s just a fancy way of saying that there are buyers and sellers that get matched so that they can trade with each other. The exchange is responsible for the matching. There are dozens of exchanges and each may carry slightly different products (such as Bitcoin or Ethereum versus U.S. Dollar). Interface-wise, and in terms of the data they provide, they all look pretty much the same.
Let’s take a look at GDAX, one of the more popular U.S.-based exchanges. Let’s assume you want to trade BTC-USD (Bitcoin for U.S. Dollar). You would go to this page and see something like this:
Price chart (Middle)
The current price is the price of the most recent trade. It varies depending on whether that trade was a buy or a sell (more on that below). The price chart is typically displayed as a candlestick chart that shows the Open/Start (O), High (H), Low (L) and Close/End (C) prices for a given time window. In the picture above, that period is 5 minutes, but you can change it using the dropdown. The bars below the price chart show the Volume (V), which is the total volume of all trades that happened in that period. The volume is important because it gives you a sense of the liquidity of the market. If you want to buy $100,000 worth if Bitcoin, but there is nobody willing to sell, the market is illiquid. You simply can’t buy. A high trade volume indicates that many people are willing to transact, which means that you are likely to able to buy or sell when you want to do so. Generally speaking, the more money you want to invest, the more trade volume you want. Volume also indicates the “quality” of a price trend. High volume means you can rely on the price movement more than if there was low volume. High volume is often (but not always, as in the case of market manipulation) the consensus of a large number of market participants.
Trade History (Right)
The right side shows a history of all recent trades. Each trade has a size, price, timestamp, and direction (buy or sell). A trade is a match between two parties, a taker and a maker. More on that below.
Order Book (Left)
The left side shows the order book, which contains information about who is willing to buy and sell at what price. The order book is made up of two sides: Asks (also called offers), and Bids. Asks are people willing to sell, and bids are people willing to buy. By definition, the best ask, the lowest price that someone is willing to sell at, is larger than the best bid, the highest price that someone is willing to buy at. If this was not the case, a trade between these two parties would’ve already happened. The difference between the best ask and best bid is called the spread.
Each level of the order book has a price and a volume. For example, a volume of 2.0 at a price level of $10,000 means that you can buy 2 BTC for $10,000. If you want to buy more, you would need to pay a higher price for the amount that exceeds 2 BTC. The volume at each level is cumulative, which means that you don’t know how many people, or orders, that 2 BTC consists of. There could one person selling 2 BTC, or there could be 100 people selling 0.02 BTC each (some exchanges provide this level of information, but most don’t).
Comments are closed.
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry’s standard dummy text ever since the 1500s, when an unknown printer took.