What do real-time bidding exchanges look like? On crypto exchanges, sellers set an ask price while buyers place a bid to state how much they’re willing to pay. Have a look!
The process of exchange bidding looks very much familiar to an auction. Buyers and sellers buy and sell assets by offering them up for bid, taking bids, and then selling the asset to the highest bidder or buying the asset from the lowest bidder.
Examine this snapshot of an order book taken on a bid and ask currency exchange HitBTC. If you look closely, you will see that there are two walls: green and red that represent the situation on the sellers’ and buyers’ sides.
What is bid and ask?
Bid is the price the buyers are ready to buy at, and ask is the price the sellers are ready to sell for. Bid and ask prices constantly change, which you can see for yourself by observing a live order book on a crypto exchange.
Examine the very first line on both sides of the order book. The bid is $12195.16 for one Bitcoin (BTC), meaning that the buyer wants to buy it for this price. The ask, however, is $12196.27, slightly higher than the bid, and it makes perfect sense, because the seller wants to sell their Bitcoin for a higher price.
In a way, this order book is a very poetic representation of any marketplace concept, as old as hills. It locks the picture of two epic antagonists fighting for a profit.
The column titled “Amount” identifies the volume of the orders at this price level. So, looking at the first line, we can see that the trading volume of people who want to sell for this price (0.09183BTC) is higher than that of those who want to buy (0.00011BTC).
As for “Sum”, this is the cumulative volume of BTC to be realized for this or better price.
With this particular order, the sum of BTC that might be bought (0.00011BTC) for $12195.16 is much less than the sum of BTC that might be sold (0.0983BTC). But on the whole, at the moment, demand (bid) is strong, which you can see based off of the green wall.
Basically, bid and ask is a universal concept for all the markets, and this is why bid and ask in stocks works likewise.
How are bid and ask useful?
We can use the bid metric to determine the optimism levels in the market without using the regular crypto fear and greed index.
Take a look at the pic up above. In general, the bids overwhelm the asks, which means that the buyers are in their element, and Bitcoin will likely go up in price.
If you see that the volume locked in asks gets smaller and smaller, just like in our pic, that might mean that the asset gets scarce, and either buyers have bought out everything or rather the sellers have started going long.
All the same – in this particular situation the price of BTC is likely to escalate.
Bid and ask trading
The difference between bid and ask, or a bid/ask spread, can be used for so-called spread trading.
The concept is quite popular in stocks, but in crypto, it can also be utilized if you know how to trade with bots. Here’s how it works.
As we’ve have already covered this in the article about market making bots, the bot places orders outside of the spread in an attempt to buy and sell with a profit. It scans for markets with a bigger spread 24/7. But basically, it buys cheaper and sells at a higher price.
Just with any crypto bot, the objective of a bot working spreads is to give a trader an advantage of time, volume, and price.
So, what is a cryptocurrency exchange bidding? In a way, the concept of bid and ask reflects the concept of an auction. Bid is the price the buyers are ready to buy at, and ask is the price the sellers are ready to sell for.
If bids overwhelm asks, the price of the asset will likely go up in price. If the asks overwhelm bids, it might mean the reversal of the trend.
The discrepancies in the bid/ask spread can be utilized by crypto trading bots to place orders outside of the spread when attempting to buy and sell with a profit.