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Some Crypto Exchange Definitions — Price Spread, Limit/Market Orders...

Author: Ivan Delgado Apr 27, 2018 at 02:15

This article was published with the consent of the author - CrowdConscious - and can be found on their blog here. Find the author's Twitter account here

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As I scan the cryptosphere, I notice there is a major lacking of financial knowledge among the masses. Now, this is something that has stuck out to me in my career and while attending college in the past; but for the first time ever the everyday consumer has the ability to buy, sell, trade and accumulate cryptocurrencies on an open market with very low barriers to entry — and a lot of scammers.

There are plenty of tools out there to learn about finance/investing/economics and cryptocurrency/blockchain; however, as technology and societal norms change, so does the way we discover content. Today we’ll touch on the following beginner investing definitions:

  • Trading Pairs
  • Orderbook & Depth
  • Price Spread
  • Market Price
  • Order Types: Limit & Market Orders
  • Candlesticks

Getting To It

If you are reading this you have probably had some sort of interest in learning about trading, or at least cryptocurrency and may have seen images similar to the one above in your time scanning the web. The image above is a screenshot of the NEO/BTC market on Binance Exchange and Orderbook.

The NEO/BTC trading pairs make up the NEO/BTC market on Binance. TheOrderbook is where all of the existing unfulfilled buy and sell orders are stored in the NEO/BTC market. Notice at the top right of the image ‘Depth’ has a red box around it — clicking this brings up a visual representation of the Orderbook for the given market, the green and red mountains in the chart. This is sort of like a snapshot of supply and demand on the given market.

The Price Spread is the difference between the highest buy order and lowest sell order in the Orderbook. Typically, the more liquid a market is the lower the Price Spread is. Liquidity is the degree at which something can be bought or sold on a market quickly without affecting the item’s price. So if there is a low degree of liquidity and somebody wants to buy, say NEO, their purchase of NEO will likely raise it’s price because the Price Spread would be bigger in an non-liquid market, i.e. 1% vs a 5% difference. The closer the Price Spread, the less the price is affected during the buys/sells.

This probably makes a lot more sense now, but the Market Price is the point at which two parties are willing to exchange a given good or service, where supply and demand meet.

Limit Order — You Set The Terms

Now that we’ve gone through some basic terminology, let’s look at the different order types. There are various exchanges out there all with their own set-up, but they typically look similar to the screenshot of Binance Exchange above.

The Limit Order allows us to set a price other than the Market Price at a certain quantity. If we set our Limit Order AT the Market Price, the order will be executed. If we set the order outside of the Market Price, our order will only be executed when that price/quantity is reached. This is a helpful way to set orders if you are Dollar Cost Averaging or if you want to set buy and sell orders to be executed when your target price is reached in order to realize a profitable trade.

For instance, if you bought NEO at the market price of 0.009337 BTC(image above), you could hypothetically set Sell Limit Orders for 0.01337 BTC so that when that price is reached, your sell executes and you profit on the tradeMinus exchange trading fees of course.

Market Order — Meeting Market Price

Before we dive into Market Orders, I just want to let you know we won’t be covering Stop-Limit Orders because it is for more experienced traders. If you’d like to learn about specifics, here’s an article explaining Stop-Loss Orders from Investopedia.

Market Orders are very simple to use and execute immediately at the current market price. Instead of setting a price and quantity like in the Limit Order, you simply enter the amount of the token/coin you want to buy and it will make the purchase for the full amount at the market price.

For instance, using the picture aboveif you wanted to purchase 5 NEO at market price, it would buy:

  • 3.22 NEO at 0.009311,
  • 1.74 NEO at 0.009310 BTC and
  • the remaining 0.04 NEO at 0.009309 BTC each.

Candlesticks — Assessing Market Health/Trend

Candlesticks are used by traders to gain a better understanding of the market trend and health based off of buys and sells at given time intervals. The candlestick time-span can range from 1-minute to weekly candlesand, as you can see in the image above, the candlesticks are colored based on whether more buys or sells occurred during that time interval based on the trade data.

Looking at the chart can be helpful, but technical analysts use multiple indicators and candlestick intervals to understand the health of the market — something a beginner would have much trouble understanding. There are dozens upon dozens of intervals to use when doing Technical Analysis, but is an art that takes a long time to truly craft.

In Closing

My goal with this article was to help provide you with some exposure to trading terms and what they mean while also including the necessary resources for you to learn further. Investing is something we should all have educational exposure to. The principles of investing help us understand what value is and why it exists. The average person is not financially savvy. This is my attempt to pitch in with some educational content and hope you found the article somewhat helpful at least.

Until next time, please follow along on Medium for the next piece of content! :)

Below are some resources for beginning cryptocurrency enthusiasts or others interested in something new:

  • History of Cryptocurrency Exchanges — insightful look into the token-based exchange model and how exchanges have evolved.
  • Cryptoversity by Chris Coney — The Online School That Pays You To Learn About Bitcoin, Crypto-currencies and Blockchains
  • HitBTC Exchange — major exchange, access ICOs and multi-currencies.
  • CoinTracking — Your personal Profit / Loss Portfolio Monitor and Tax Tracker for all Digital Coins
  • Changelly — as easy as purchasing cryptocurrency gets — watch the exchange rate.
  • CoinMate.io — Bitcoin arbitrage made easy.
  • CEX.io — Buy Bitcoin w/ credit card, ACH bank transfer, SEPA transfer, cash, or AstroPay. Credit purchases are instant.
  • CoinPayments — Receive payment via 70+ different cryptocurrencies — the crypto-PayPal.
  • CoinMama — purchase Bitcoin and Ethereum w/ credit/debit cards & using cash through WesternUnion on their platform. Best for Euro purchases.
  • Bit-Z — Newer Top 20 cryptocurrency exchange adding new, ICO coins all the time.
  • Exmo Exchange — just launched their own coin and adding robust features to the trading platform.
  • Gate.io — Cryptocurrency exchange listing new coins — get 10% off trading fees if you register with this link.
  • CryptoPay — Spend your crypto. Can order a Euro, US Dollar or Pound crypto-debit card. Get 25% off using this link.
  • LinkCoin — Your ticket to using LinkCoin, Bibox, and Bibox365 exchange products and ICO’s — mainly Asian cryptocurrencies that are not available on other exchanges.
  • Cryptocurrency Resource Telegram Channel — acts as an ICO/blockchain news/resource channel for crypto beginners.
  • Ledger Nano S — multi-cryptocurrency cold hardware wallet supporting Bitcoin forks. Keep your coins safe and offline. Cold storage.
  • Kucoin — new exchange with its own token used to split exchange fees with holders, daily. Only exchange with NEO trading pairs too.
  • Binance — 150+ cryptocurrencies with its own token used to pay exchange fees on the platform and give perks to traders on their platform.