What spot trading means
Spot trading in cryptocurrencies means the fast exchange of one digital asset for another without delay in settlement. For instance, if a buyer uses USDT to buy Bitcoin on a spot market, their USDT is instantly deducted and real Bitcoin is credited to their account. Unlike with derivatives or leveraged contracts, this kind of trading involves actual ownership of the assets. It is simple, transparent and completely driven by the present market price and the balances that are available.
The process of spot trading
To begin with, a user selects a trading pair, for example BTC/USDT, and indicates whether they want to buy or sell. After that, they submit an order, which could either be a limit order that is executed only at a particular price or a market order that is executed immediately at the best price available. If the limit price cannot be quickly matched, the order remains in the order book until a compatible order comes. Once the trade is matched, the exchange transfers the asset to the seller and the payment asset to the buyer, thereby updating the balances of both users and accounting for the fees.
How a spot engine processes orders
An order confirmation is required for each order to guarantee that the user has a sufficient balance to perform the action. The matching engine does a comparison of the incoming order with the existing orders on the opposite side of the order book. If the specifications are met, trades are made. The order book keeps the remaining amounts of unfulfilled limit orders. In the course of trading, the users are gradually creating a dynamic marketplace of bids and asks.
Visualizing spot market activity
Visual aids are of utmost importance to a complete spot-trading setup. A time-series diagram of trade prices reveals to the user what has been going on in the market. The distribution of trade sizes can illustrate user activity and liquidity. A depth chart of the order book reveals the price levels at which there is the most buyer and seller interest. Such visual aids are helpful to the developers’ verification of the engine’s correct functioning and to the traders’ better intuitive grasp of the market.
