Traders Reality

Understanding order process

The basics you have to understand

Table of content.

Steps Process

1 Placing orders

2 The order Book

3 Filled orders

4 Price and Volume

5 Liquidity in the market

Created by Eagle The Lion

1. Placing orders

Market Order vs. Limit Order

Market orders are transactions meant to execute as quickly as possible at the current
market price. Aggressive order.

Limit orders set the maximum or minimum price at which you are willing to complete the
transaction. Passive order.

A stop-loss (S/L) is a limit order that becomes a market order once the target price is
achieved.

A take-profit order (T/P) is a type of limit order.

Long vs. Short

Long = Buy
Going long involves buying and then selling later, as price inclines.

Short = Sell
Going short, or short selling, is a way to profit when price declines. A short seller borrows
from a broker and sells that into the market.

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2. The order book
The Order Book shows how many limit orders are active at each price level at the current
moment.

Depth of market (DOM) data is also known as the order book since it consists of a list of
pending orders.
Market depth measures the volume of limit orders in real time. It is possible to estimate the
filled price of a market order.

If the buy side is larger, it suggests stronger momentum, price is likely to rise.
If the sell side is larger, the price is likely to drop.

Bid vs. Ask

The bid price represents the maximum price that a buyer is willing to pay.
The Bid price are initiated by aggressive sellers.
"Hit the bid" is a term used when a trader agrees to sell at the bid price.

The ask price represents the minimum price that a seller is willing to take.
The Ask price are initiated by aggressive buyers.
"Lift the ask" is a term used when a trader agrees to buy at the ask price.

The difference between bid and ask prices, or the spread, is a key indicator of liquidity. High
friction between the supply and demand will create a wider spread. A wider spread can
result in volatility and slippage.

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3. Filled orders
A fill is the result of an order execution. A limit order may not fill if the price is not achieved.
A market order is filled immediately at the best available current price.
And therefore market orders in conjunction with limit orders move prices.

Market Makers
The Market Maker provides bids and asks along with the market size. They provide
liquidity and depth to markets and profit from the difference in the bid-ask spread. They
may also make trades for their own accounts, which are known as principal trades.
Market Makers fill orders from their own inventory or by matching them with other orders.
They will try to fill the big orders by moving the price.
They will also move prices to liquidation levels and stop-loss orders.

4. Price and Volume

Price action
Price action generally refers to the changes of price over time. When market orders come
in and fill limit orders, price will move.
The hybrid System uses candlestick charts since they help better visualize price movements.

Candlestick
A candlestick is a type of price chart used in technical analysis that displays the high, low,
open, and closing prices for a specific period.

Volume
Volume = Total amount of contracts bought or sold at a period of time.
Every transaction that takes place between a buyer and a seller of a security contributes to
the total volume count.
Volume tells investors about the market's activity and liquidity. Higher trade volumes mean
higher liquidity, better order execution and a more active market for connecting a buyer and
seller.
When there is low volume things can get volatile, because the spread between the ask and
bid can be wider.

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Delta
Delta = The difference between the volumes of market buys and market sells at each
price (Footprint Delta) in each candle/bar (Bar Delta) or for a period of time (Cumulative
Delta).
The positive Delta reflects a higher volume of aggressive buys.
The negative Delta, in its turn, reflects a higher volume of aggressive sells.

Cumulative Delta Volume

CVD = The difference between the volume initiated by the market buys and market sells
for a period of time.
The Cumulative Volume Delta reflects the whole dynamics of the balance of market buys
and sells starting from a certain moment of time (from the beginning of a trading session or
contract).

Volume Profile
Volume profile = Shows the trade volume amount over a specified period, at a certain
price value.
Volume profile are used to illustrate high buying and selling interest at specific price
levels, which can be indicative of support and resistance.

Volume-weighted average price

The volume-weighted average price (VWAP) represents the average price traded
throughout the day, based on both volume and price.
VWAP is important because it provides traders with pricing insight into both the trend and
value.
If prices below VWAP move above it, traders may go long. If prices above VWAP move
below it, they may sell their positions or initiate short positions.

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5. Liquidity in the market

Liquidity
Liquidity refers to the efficiency or ease with which an asset can be converted into ready
cash without affecting its market price.
When the spread between the bid and ask prices tightens, the market is more liquid, when it
grows the market instead becomes more illiquid.

Liquidation levels
Leverage allows traders to borrow funds in order to enter a position larger than their own
funds permit. Traders who trade with leverage are doing so with the goal of capturing larger
gains but also at the risk of being "liquidated", or losing all or nearly all of their Initial Margin.
Initial Margin is basically the amount of money coming from the traders pocket.

Stop-loss order
Traders may choose to use a stop-loss (S/L) order to limit their losses and protect their
profits. By placing a stop-loss order, they can manage risk by exiting a position if the price for
their security starts moving in the direction opposite to the position that they've taken.
A stop order (stop-loss) is a limit order that becomes a market order once the target price
is achieved.

Take-profit order
A take-profit order (T/P) is a type of limit order that specifies the exact price at which to
close out an open position for a profit. If the price does not reach the limit price, the
take-profit order does not get filled.

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Sources
Traders Reality
Investopedia
Exo charts
Atas
Bybit
Binance
Hyblockcapital
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