2020-September-11

Part I: Cryptocurrency Exchange Order Book Depth Analysis

A question mark has always loomed over the reality of trading volumes on major exchanges. So much so, that industry participants have aimed to tackle the data issue by analyzing various discrepancies. One major factor is looking for the trends that happen across reputable exchanges during the same time periods. Still, trading volumes alone can only account for so much when traders are looking for liquidity during times of high volatility. As such, order books are also an important factor to consider in order to understand the true depth of an exchange, and whether or not large volumes can go through.

ZUBR takes a deep dive into order books across spot and derivative exchanges in an effort to better assess an exchanges ability to manage the demand supply balance.

Key Takeaways:

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The primary goal of any trader is to achieve best market execution. This aim is easier said than done. Cryptocurrency markets have been plagued by questionable practices by market participants and have made market manipulation an industry expectation. But the industry has been maturing with volume and order book tampering being quickly recognized by market participants.

Key to the problem is the supply in markets being distributed across multiple global exchanges of an asset that moves in and out of a trading venue at ease. As such, determining the right price, and which venue will be able to execute the trade in full is a tall order.

Trading volumes have been a key metric that players keep an eye on. However, an increase in volume does not mean an increase in real liquidity. Insufficient market depth on order books leads to dreaded slippage – the price that the trade is finally executed is different to the expected price.

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