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Author Topic: How do Exchanges work?  (Read 1043 times)
deuxmill
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July 08, 2011, 12:39:48 PM
 #1

So the question is :

If the current Ask price is 14.000 and the highest Bid price is 13.900 and a lower bit of 12.000 and someone is willing to sell at 12.000 , so he places a selling order at 12.000 . How will this exchange work. Will the highest bidder get what he bided for , or will the bidder with 12.000 ? If the one with 13.900 wins then what happens with the rest, does it go to the seller ?

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July 08, 2011, 01:55:26 PM
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Offers to sell are those above the last transaction and offers to buy are below the last transaction. Whenever someone buys some BTC they move from the nearest offer to sell to the offer and acquire the volume they want, if that is not enough the next is accepted etc. wherever they end up is the new price. Same for wanting to sell BTC. Offers cannot be skipped, the exchange takes the nearest offer and processes that.

It would not be logical for a buyer to accept a higher bid if he could buy the same thing for less, unless he was attempting to tell the market that something is worth more than he rationally would want to pay for it and that it is on offer for. The purpose of the market is easy purchases and sales and as a result price discovery. If someone did not want to move the market they could participate on the dark pool, but even that moves the market as it depletes buyers or sellers and eventually this reflects in price.

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July 08, 2011, 09:18:38 PM
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They turn money in to bitcoin and bitcoin in to money. They also work by ignoring security, basics of business and play card games. They are the magic gathering online!
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July 08, 2011, 09:20:51 PM
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They also work by ignoring security, basics of business and play card games. They are the magic gathering online!

^^

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July 10, 2011, 03:53:32 PM
 #5

In an exchange market, orders are placed with limits.  A buy order includes the maximum that you are willing to pay for each coin.  A sell order includes the minimum that you will accept.

All orders are stuffed into a database called the order book.  The matcher looks at the order book, and any time it finds an overlap, it processes that order and updates the balances.

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Sultan
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July 11, 2011, 12:12:52 PM
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I think the question of the OP is how are the trades matched?

E.G.

If there is already a sell order at 10 each and you want to place a buy order at 12 each, how do the exchanges decide what is traded? Are they matched at 10 each, which is what the seller would accept, minimum, giving the buyer, effectively a discount.

OR

Is this settled at 12 each, which is what the buyer was willing to pay but giving the seller a better deal.

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July 11, 2011, 01:59:35 PM
 #7

That depends on the exchange.  I think that mtgox and tradehill both go with the price of the earlier order.  Most real world exchanges have the same policy.

So, if there are three sell orders waiting:  1@10, 1@11, and 3@12, and a buy order comes in for 4@12, the total price would be 45 instead of 48.

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deuxmill
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July 13, 2011, 09:57:37 AM
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I think the question of the OP is how are the trades matched?

E.G.

If there is already a sell order at 10 each and you want to place a buy order at 12 each, how do the exchanges decide what is traded? Are they matched at 10 each, which is what the seller would accept, minimum, giving the buyer, effectively a discount.

OR

Is this settled at 12 each, which is what the buyer was willing to pay but giving the seller a better deal.

That was exactly what i asked Cheesy
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