Bitcoin market depth explained
Depth of Market, aka the Order Book, is a window that shows how many open buy and sell orders there are at different prices for a security. The data is streamed from the broker. The data in the DOM and the chart may be slightly different since various data sources are used. By default data is shown in a semi-static format. This means that the price rows are fixed while the price moves within the shown range. The 5-second timer is the middle icon [7].
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Content:
- Binance.US Review 2022: Low Fees, But Investors Should Take a Pass
- Understanding Order Book and Market Depth
- Heatmap in Trading: How to Learn What Market Depth is Hiding?
- Market analysis and how cryptocurrency is perceived
- First Mover Asia: Bitcoin Stabilizes Above $36K as Investors Await Next Fed Meeting
- An Analysis of Order Book Depth on the Binance Exchange
- Your Money, Simplified.
Binance.US Review 2022: Low Fees, But Investors Should Take a Pass
Author: Contributor Date: June 30, Experienced traders are likely to have heard of buy walls and sell walls, which can be identified as price points where there are large volumes of buy orders or sell orders set respectively.
Buy walls and sell walls can greatly influence price fluctuations in cryptocurrency and stock markets. Understanding them can be advantageous when trading cryptocurrencies such as Bitcoin and Ethereum because it allows you to better predict price changes and set your limit orders accordingly.
However, it is crucial to understand the reason behind buy walls and sell walls as they can sometimes be a form of market manipulation instead of reflecting true trading sentiment. Buy walls in green and sell walls in red from a Bitcoin example.
Source: Phemex. A buy wall is a massive buy order, or cumulation of buy orders, at a particular price level. The volume of these buy orders is large enough to drive the price of the asset up if the trades are fulfilled. In fact, the presence of the buy wall tends to drive prices up even before the buy wall orders are fulfilled.
The buy wall also reflects market confidence that the price level will be significantly higher than the price of the buy wall. As such, traders respond by setting their buy orders even higher than the buy wall to get their hands on the cryptocurrency or stock and to get in on potential profits before the assets are scooped up.
This drives prices up even further. However, it is important to note that buy walls often do not reflect true market sentiment. Small buy walls tend to occur at round numbers due to psychological preferences. This is noted by many traders, who respond by pricing their buy orders just 0. Buy walls can also be artificially created. Since buy orders are dynamic and can be added or removed continuously, buy walls can be used as a form of market manipulation and may not represent true interest to buy the cryptocurrency at that price.
A sell wall is the opposite of a buy wall. It refers to a large massive sell order, or cumulation of sell orders, at a particular price level, and is also frequently seen in cryptocurrency trading. A sell wall can cause the price of a cryptocurrency to drop. This is because a sell wall indicates that there will be a surge in the supply of the cryptocurrency at that price. This will overwhelm demand and drive prices down.
Traders who wish to sell off their cryptocurrency are aware of the fact that if they set their prices above the sell wall, the asset may never hit their order price. Thus, they pre-emptively set their sell orders below the wall. This drives prices down further, as more and more traders set sell orders below the sell wall. Thus, the cryptocurrency meets with great resistance at that price range and will be kept at a low price.
However, similar to buy walls, sell walls can be manipulated by whales — traders who own a large portion of the cryptocurrency or stocks available. In order to identify buy and sell walls on a real cryptocurrency exchange , a trader must first understand how to read an order book. An order book lists the number of shares being bid or offered at each price point.
They consist of unfulfilled buy orders, sell orders, and market order history. A bid is an order to buy, while an ask is an order to sell. Example of an order book. Source: Medium. When the price points of a bid and an ask match , the exchange makes the trade.
The occurrence of these trades in turn influences the price of the asset. For instance, if there is high demand for a cryptocurrency and buyers are willing to pay a high price for it, they may keep increasing their bid prices until they match the asking price of the sellers. When such trades take place, the price of the cryptocurrency or stock is driven up. While order books are meant to help traders make more informed decisions, this market information can oftentimes be influenced by large players who wish to manipulate market sentiment.
A depth chart is a tool for understanding the supply and demand of a cryptocurrency at any moment for a range of prices. It is a more visual graph that represents the information in the order book. Typically, a trader is able to hover their mouse over the bid and ask lines to view the number of purchase or sell orders at each price point easily without having to eyeball the axes.
In the case of buy and sell walls, you would see significantly deeper vertical lines resembling the sides of a staircase in the depth chart, as seen in the example below. Example for reading depth charts. As explained briefly above, a whale is a person or institution that holds significant amounts of a cryptocurrency or other asset.
This gives them an inordinate amount of power to impact market prices through their actions. If Tesla were to sell all of its Bitcoin, for instance, the price of the cryptocurrency would surely plummet due to the sheer volume and over-supply of Bitcoin that is suddenly released to the market.
Additionally, such actions tend to influence public sentiment on the health and growth potential of the cryptocurrency, thus leading to further sell-offs. This is why many experts warn that buy and sell walls are often artificially created. Whales have the resources to single-handedly create buy and sell walls by setting a high number of buy or sell orders. Some whales intentionally do so to sway market sentiment and manipulate prices for their own gain. This is called a whale trading strategy.
Hence, buy and sell walls may not always be a meaningful estimate of public sentiment for a cryptocurrency company or product. Traders should thus take note not to overly rely on buy and sell walls when making their trading decisions.
It can be difficult to tell if a buy or sell wall is real or artificially created as part of a whale trading strategy. This is especially so in the cryptocurrency market, where volatility is high, and markets are largely based on market sentiment rather than financial metrics or industry trends. However, one way you can determine if the buy or sell wall is real is by keeping up to date with the latest news in cryptocurrency.
In the case where there appears to be significant buy walls or sell walls against the backdrop of little change in public sentiment on social media and in the news, that may be an instance of market manipulation. Another important concept that could help you evaluate the potential impact of buy or sell walls, and the possibility of market manipulation, is market depth. Market depth is considered to be high when there are high volumes of pending orders on both the bid and ask side.
This means that prices are less easily manipulated by large market orders at any particular price, since these are absorbed into the large volume of overall orders.
It is thus less likely for the buy and sell walls to have a huge influence on the prices, and traders need to pay less heed to them in such cases.
However, at the end of the day, there is no fixed guideline in determining whether a buy wall or sell wall is real, and much of it relies on your own discernment. The cryptocurrency markets are characterized by both high risks and high returns. Profitable trades can earn you huge rewards that easily supersede the stock markets. However, the unpredictable and highly speculative nature of trading cryptocurrencies lends itself to market manipulation. This is especially the case when market depth is low and a single whale or group of whales can cause significant price shifts.
Learning more about technical analysis and staying updated on the latest developments in the cryptocurrency markets can help you discern the right opportunities and trading strategies amidst the volatility.
By Contributor January 26, By Contributor January 24, Phemex Blog. Phemex Crypto Blog: Learn the latest news, updates, and industry insights on bitcoin futures, bitcoin trading, crypto derivatives exchange, and related blockchain technology. Crypto Key Questions Answered. For any inquiries contact us at support phemex. Follow our official Twitter account to stay updated on the latest news. Join our community on Telegram to interact with us and other Phemex traders.
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Understanding Order Book and Market Depth
Before you jump into this overview of how to buy and sell bitcoin, check out our first article in this series, Bitcoin, explained. Mining bitcoin isn't the only way to get your hands on the stuff, you know. In fact, mining bitcoin is a complete pain in the buns. At a minimum, you need specialized software, a sophisticated hardware rig to run it and a considerable amount of electricity to power the whole thing.
Heatmap in Trading: How to Learn What Market Depth is Hiding?
The blockchain industry moves quickly. Unlike traditional stock markets, the cryptocurrency markets never sleep—they are open 24 hours a day, 7 days a week. Even the most experienced crypto enthusiasts realize the importance of continual learning, with hundreds of new cryptos launched each week and existing projects being constantly updated to suit the ever-changing needs of the communities they serve. Coinbase Learn is a comprehensive educational platform that aims to explain the concepts of digital currencies and blockchains. Hosted by Coinbase, a popular cryptocurrency exchange, Coinbase Learn allows first-time crypto holders and veterans alike to brush up on their technical knowledge and explore how the underlying technologies work. The Binance Academy is an educational platform that aims to educate crypto beginners. Provided by Binance, a cryptocurrency exchange and creator of the Binance Smart Chain smart contract platform, The Binance Academy allows users to get acquainted with key terms and concepts in the cryptocurrency and blockchain ecosystem. Coindesk describes itself as a media platform for the next generation of crypto investors. Publishing a range of content from crypto news, to podcasts, research articles and explainer articles—Coindesk serves millions of readers today with the latest in digital assets and blockchain technology. Cointelegraph is an independent digital media platform that specializes in blockchain technology, cryptocurrencies, and emerging FinTech trends.
Market analysis and how cryptocurrency is perceived
Author: Contributor Date: June 30, Experienced traders are likely to have heard of buy walls and sell walls, which can be identified as price points where there are large volumes of buy orders or sell orders set respectively. Buy walls and sell walls can greatly influence price fluctuations in cryptocurrency and stock markets. Understanding them can be advantageous when trading cryptocurrencies such as Bitcoin and Ethereum because it allows you to better predict price changes and set your limit orders accordingly. However, it is crucial to understand the reason behind buy walls and sell walls as they can sometimes be a form of market manipulation instead of reflecting true trading sentiment.
First Mover Asia: Bitcoin Stabilizes Above $36K as Investors Await Next Fed Meeting
Heatmap is a way to determine where liquidity is in the market and how liquidity-providers are behaving. In other words, it is a way to determine where the actual orders in the market are being made. In this article, we will explain what Heatmap does and why it is useful to traders. Since equity and futures markets first developed, most traders have relied upon price charts to understand the behavior and psychology of other traders and institutions. In the early days of trading, these price charts were made up of lines or bars.
An Analysis of Order Book Depth on the Binance Exchange
Created in January , bitcoin is a unit of digital currency and a worldwide payment system. Bitcoin code can also be stored on memory sticks or computer hard drives. It can be used to book hotels on Expedia and to buy Xbox games. Bitcoin is incredibly volatile and its price varies wildly. By the time you read this, the value will probably have changed.
Your Money, Simplified.
Personal Finance. In whichever platform you are reviewing a crypto chart, such as Coinbase or Ethereum, you will have the option to examine a minute chart, an hourly chart, 4-hour chart, or a 1-day chart. The time frame that you choose will be dependent on your personal trading style.
Market depth describes a real-time electronic list of all the buying and selling orders queuing up to be transacted on a stock market or other trading platform. It is useful for traders to see where the weight of bids and offers lies for any security. As an investor, you may find your financial adviser discussing market depth in relation to a security in which you are interested. Market depth may be explained in how-to investment guides. It describes a real-time list showing the state of play with regard to buying and selling in a particular security.
It will also examine the accounting and regulatory, and privacy issues surrounding the space. Bitcoin , blockchain , initial coin offerings , ether , exchanges. Originally known for their reputation as havens for criminals and money launderers, cryptocurrencies have come a long way—with regards to both technological advancement and popularity. The technology underlying cryptocurrencies has been said to have powerful applications in various sectors ranging from healthcare to media. With that said, cryptocurrencies remain controversial. It will also examine the outstanding issues surrounding the space, including their evolving accounting and regulatory treatment.
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash. This means if one block in one chain was changed, it would be immediately apparent it had been tampered with.
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