How Trades Execute

When it comes to executing trades, it is important to have a clear understanding of how the process works. This includes knowing the various steps involved and the factors that can impact the execution of a trade. By having a comprehensive understanding of trade execution, you can make informed decisions and maximize your potential returns.

The trade execution process involves several important terms. Firstly, you must determine the type of trade you wish to execute, whether it is a market order, limit order, stop limit order, or stop market order. Each type has its own benefits and factors to consider, so it is crucial to select the one that aligns with your trading strategy and goals.

Market orders & Limit orders

The order books and current market value are constantly changing. When you place a market buy or sell order (buying above or selling below the current market value), your order will be executed immediately at the best available price, as long as there is enough liquidity to fulfill your entire order. The execution is based on limit orders in the order book. However, there is a possibility of slippage, where the executed price differs from your expected price. This occurs when you try to buy or sell at rates outside the current market prices, which means you are not adding liquidity to the book but instead taking from it.

A limit order allows you to place an order at a specific or a better price. A buy limit order will be filled if the price matches or is lower than your limit price, while a sell limit order will be filled at or higher than your limit price. It's important to note that while a limit order gives you control over the price at which your order is executed, it does not guarantee that your order will be executed.

Once you have determined the type of trade, the next step is to submit your order. Once submitted, your order enters the order book, where it is matched with potential buyers or sellers.

Open Orders

If your order is not fully executed due to lack of liquidity, an open order will be created, which in turn adds liquidity to the order books. Orders remain open if they have not been fulfilled yet. When you place an order to buy or sell a certain quantity of a coin at a specific price, there must be counter-parties available who are willing to trade with you at that price and quantity. If there are no counterparties willing to accept your order, the order will remain open until there are counterparts who take your order. Please note that these orders will remain open until the parameters you have set are met for the complete fulfillment of the order.

Order Books and Execution

When orders are entered to the order book they will be executed based on the market requirements. In a buy situation, the lowest ask will be selected first, and in a sell situation, the highest bid will selected first. Order books are filled with many orders, set at different prices, for different amounts, which creates market liquidity within the order book. A large amount of orders and assets creates a large, rich, liquid order book. This type of order book can be seen on an asset such as BTC, which is the most traded coin.

When an order book has multiple entries for the same price it will show a combined value of orders based at that price point. For instance, let's say there are 5 traders who want to buy 1 Bitcoin futures contract each at a rate of 5000 USDT per contract. The order book would show a price of 5000 USDT, a quantity/size of 5 contracts, and a total value of 25,000 USDT.

If a customer wants to sell 2 Bitcoin futures contracts at 5000 USDT per contract, the trading platform will match the seller with the first orders placed at that price range. This is known as price-time priority, meaning orders of the same value will be executed based on the time they entered the order book. This is also known as a first in-first out order execution method, or FIFO for short. In other words, the oldest order (first in) will become the first order out, or sold (first out).

Coincall’s vision

Coincall's option liquidity matches that of the market leader. However, option trading liquidity has not reached the level of futures or the spot market. It is important to note that options only account for approximately 1% of the entire crypto market volume. Despite this, Coincall remains optimistic about the potential of options and strives to create a highly liquid option trading environment, providing all Coincall users with the best possible trading experience!

We hope that these explanations and the principles presented will help you along your way to understanding trading and becoming the best trader you can be! Please feel free to reach out to us at any time should you have any additional questions that were not addressed.

Happy trading!