Table of Contents
An order book is the list of orders that an exchange uses to record the interest of buyers and sellers for a particular financial market. A matching engine uses the book to determine which orders can be fully or partially executed
Example of an order book on AscendEx where the prices in red indicate sell orders and the prices in blue indicate buy orders.
The order book is very liquid when a great amount of orders is stored in each buy and sell side of the order book. In such a situation a market order produces only a small price adjustment. On the contrary, if the order book is not liquid, there are only a few orders on the buy and sell side and there is a very large average gap in price between adjacent orders. In this case, even a market order with a small volume can produce a dramatic price fluctuation of several ticks. Markets perform better when they are more liquid.
A limit order is an order that you place on the order book with a specific limit price. The limit price is determined by you. The trade will only be executed if the market price reaches your limit price (or better). Therefore, you may use limit orders to buy at a lower price or to sell at a higher price than the current market price.
A market order lets you purchase or sell a financial asset instantly at the best price currently available. Market orders take prices from limit orders on the order book. This means you can’t be 100% sure of the price you will get. Slippage can occur when you get a price different from what you expected.
Depth Chart of the buy (green) and sell (red) orders
The bid-ask spread is the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept. These prices are reflected as bids and asks on an order book, placed by market makers as limit orders.
Price takers will place market orders to buy or sell an asset, and in doing so they accept the best bid or best ask determined by the market maker.
In Hummingbot, the
bid_spread is the % how far from the mid price you want your buy orders are placed. While
ask_spread is for your sell orders.
Mid price is NOT the price that you see in the middle of the orderbook - that's the last trade price.
Mid price is the average price of the best bid and ask. Which means:
mid_price = (best_bid + best_ask) / 2
your order prices are calculated as follows:
hbot_bid_price = mid_price * (1 - bid_spread) hbot_ask_price = mid_price * (1 + ask_spread)
and spread equation is:
(|bid_price-mid_price|/bid_price)*100 or (|ask_price-mid_price|/ask_price)*100
where |x| is the sign of abosulte value.
Slippage is financial loss during trading as a result of market inefficiencies and illiquidity. Slippage occurs when an illiquid market experiences a sudden, large change in demand or supply, resulting in losses for the buyer or seller.
Learn more: https://river.com/learn/terms/s/slippage/
Market Makers add liquidity to an exchange’s order book by placing limit orders, or orders to buy or sell at a specific price that is not immediately filled. Makers place orders that are not immediately matched by an existing order. Without limit orders sitting on an order book, there would be little liquidity for a given pair as an exchange would be trying to match buy and sell market orders as they are placed. These Market Makers are crucial for maintaining price stability, as they fill up an order book with limit orders at different levels. Makers are typically rewarded with lower fees for providing liquidity to the market in the form of buy/sell limit orders.
Market Takers take liquidity, as in they place market orders to immediately buy or sell. Market orders are orders to take the best available price in the current market. Takers take the price that they want and in doing so, they are “taking” volume off of an order book. They place orders that are filled immediately by buy or sell orders already sitting on the books. Taker market orders are designed to never land on an exchange’s order book, as they are filled by the exchange’s matching engine as they are placed. Thus, taker fees are typically higher because their orders are filled immediately.
It can be assumed that every taker’s market order is filled by a maker’s limit order but this is not always the case. You can place a limit order to "cross" and take an order from the orderbook so it becomes a taker.
In this orderbook, the best bid is 405.49 and 405.54 best ask price.
Placing a limit order would normally put your orders in the book and wait for someone to fill that order.
But if you place a limit buy order with the price of 405.54, since it has a matching sell order it would immediately take it.
You can try doing this on your own to see it
A market maker is any person that posts a buy or sell offer on the order book, providing liquidity to that specific market.
A market taker is any are accepting the prices offered on the order book is called a market taker.
To learn more about the difference between Market Making and Arbitrage:
How is market making different from bitcoin mining and liquidity pools?
That is where the Hummingbot software comes in. The software acts as a layer to automatically execute an algorithm that you set for trading. It sounds complicated but it can be as easy as “set buy orders at 1% below the current price and sell orders 1% above”. There are far more options, but this is just the jist.
In cryptocurrency, the term “trading pairs” describes a trade between one type of cryptocurrency and another. For example, the “trading pair” ETH/BTC.
With ETH/BTC you can buy Ethereum with Bitcoin, or sell Ethereum for Bitcoin.
Minimum order size is the smallest amount of cryptocurrency that you can buy or sell in the exchange.
Hummingbot's minimum order size is denominated in base asset. If a certain exchange uses quote asset in their list of minimum order size, you may also find this crypto converter calculator useful.
Some exchanges have no web pages where you can view the minimum order size. For example in KuCoin, you have to use an application like Postman to get REST API data. See doc below :
Whenever you execute trades (taking an order or when someone fills your orders) there are corresponding fees deducted from the total amount. Fees vary from exchanges.
Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference. Stablecoins may be pegged to a currency like the U.S. dollar or to a commodity's price such as gold.
USD Tether / USDT
True USD / TUSD
Paxos Standard / PAX
USD Coin / USDC
Binance USD / BUSD
A fiat currency is a national currency that is not pegged to the price of a commodity such as gold or silver. The value of fiat money is largely based on the public’s faith in the currency’s issuer, which is normally that country’s government or central bank.
Now, we can get into some practical tips on crypto trading in general as an introduction. The following article by Hummingbot trader Tsalkapone is a good starting point. In the article, you will learn about practical tips for:
Here are some helpful tasks for you to understand the basics of crypto trading. If you find it helpful, feel free to go through these tasks.