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Author: Admin | 2025-04-27
Price levels.The concept of order books dates back to the early days of stock exchanges, where traders manually recorded bid and ask prices. The first computerized order book system was introduced in the 1970s, revolutionizing trading by automating price discovery and trade matching. Today, order books power both centralized and decentralized cryptocurrency exchanges, ensuring fair and efficient markets.How do Crypto Order Books Work?Crypto order books operate on the so-called bid-ask system. In it, buyers place bids at their desired price and sellers list their asking prices. The book constantly updates in real time, matching trades when prices align. Here’s how the process works:Liquidity Providers: Traders or institutions place buy and sell orders, contributing to market liquidity.Price Determination: Prices are determined based on the highest bid (buyer’s price) and lowest ask (seller’s price).Order Matching: On centralized exchanges (CEXs), the exchange’s matching engine pairs buy and sell orders. On decentralized exchanges (DEXs), smart contracts or automated market-making (AMM) protocols facilitate matching.Execution: When a match is found, the trade executes instantly, and the transaction is recorded on the exchange.Crypto Order Book Trading: An ExampleLet’s look at an example. Imagine that Alice wants to buy 1 Bitcoin (BTC) at $40,000, while Bob wants to sell 1 BTC at $41,000. Alice places a limit order for $40,000, and Bob places his ask price at $41,000. Their orders remain in the order book until a buyer or seller matches them.Later, another trader, Charlie, decides to sell 1 BTC at $40,000. Alice’s buy order matches Charlie’s sell
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