Ever wondered why it’s so hard to win at crypto? It’s because the odds are rigged against you on most crypto exchanges where big financial institutions are in bed with the exchanges. Ouinex is changing that and turning retail traders into top dogs with a unique no-CLOB execution model.
Five Key Takeaways
- The Central Limit Order Book (CLOB) is an execution model used by big exchanges like NASDAQ and is considered fair as it matches buy and sell orders in the correct order, and all traders can see inside the order book, making it transparent.
- On crypto exchanges where retail traders (that’s you and me) are trading against massive financial institutions and there is little regulation (oversight from authorities), the CLOB is being manipulated to the advantage of the institutional traders.
- Institutional traders can execute orders much faster, meaning retail traders usually don’t get the price they click to execute at, but a price that’s worse (negative slippage). Limit orders and other preset orders might not be executed at all because the institutional traders are faster to get to the best prices and they sweep them before the retail traders have a chance to get to them.
- Because all orders are visible to traders in the CLOB and there is little to no regulation from authorities, manipulation tactics like spoofing, stop hunting, layering, and so forth are being used by institutions.
- Ouinex’s no-CLOB execution model ensures that retail traders are separated from market makers and other institutional traders. Institutions can only make prices, not take them (meaning they can’t affect the liquidity of the exchange negatively). This means that institutional traders offer up bid and ask prices and Ouinex selects the best offers and feeds them to the retail traders. In short, the institutions trade against each other to offer the best prices. In addition, institutions cannot see inside the order book, and retail traders cannot view preset orders from institutions.
A Little Bit of Trickery
If you’ve been trading crypto for a while, chances are you’ve had your ups and downs, but if you ever felt the game was rigged, you weren’t entirely wrong.
Is there trickery involved on crypto exchanges?
Yes and no.
You can win at crypto.
You just win less than the big financial institutions you’re trading against.
The institutions have an unfair advantage. Meaning the odds are stacked against you and you’ll never do as well as they are…even if you invest millions and predict the market perfectly.
Why is that?
It’s all because of the Central Limit Order Book (CLOB) execution model used by crypto exchanges. Which is why, for Ouinex, we’ve developed a unique no-CLOB execution model.
So let’s have a look at the CLOB and why Ouinex’s no-CLOB model is such a game changer for retail traders trading crypto.
How Retail Traders Are Set Up to Fail on Crypto Exchanges Using the CLOB
Crypto exchanges use the same execution model NYSE and other big exchanges do: the Central Limit Order Book (CLOB).
In theory, the CLOB is a fair system that matches buy and sell (ask and bid) orders in the correct order. As the order book is open for anyone to look at, it’s a transparent model. If anyone tries some hanky-panky, they’re sent to the authorities.
But wait.
Crypto exchanges don’t have the same regulations as traditional exchanges. If you try dirty tricks like spoofing and stop hunting here, you won’t face legal action. The exchanges turn a blind eye to the institutions they need to run the platform.
In short, the exchanges are in bed with the institutions.
So what does that mean for you, the little trader pitched against the Goliaths of the crypto trading world?
It means the odds are against you, the crypto giants always get the best prices, and you get the leftovers.
Here’s why.
The Institutions You Trade Against on Crypto Exchanges Are Faster Than You
You see an order in the order book, type in a price, and click to execute.
But do you get the price you put in?
Likely, no.
Why?
Because while you were typing in the price, a financial institution using advanced trading software and trading algorithms already swept in and took that price.
That means you get the best available price by the time your order is executed, which is worse than the price you clicked to execute at.
This is called negative slippage, and if you have a look at your orders, you’ll see that it's rare you get the price you want.
The Big Institutions Trading on Crypto Exchanges Will Trick You
A wee bit of trickery isn't so bad, is it?
Well, if you’re constantly losing money to it, it isn’t great, is it?
Let’s say you see some big orders coming up in the order book. They’re a little bit above the current market price, so you rub your hands together thinking that when the orders go through, the price will rise.
So you buy up a bit of the asset.
So do other retail traders.
And the price goes up as people are buying, but just before the market hits the price the big orders are going to execute at, the orders vanish into thin air.
Then, suddenly, the price goes down instead of up.
Magic.
Or is it?
It’s not. It’s the big institutions cancelling the buy orders and selling off some of their assets now that you and other retail traders have pushed the price up.
In other words, the big financial institutions are making a profit, while you’re losing out.
This tactic of placing orders and then cancelling them at the last minute only to reverse the orders (sell instead of buy, or buy instead of sell) is called spoofing. (We are not going to crack a joke about spooking. Really. Not.)
There are many more manipulative tactics, such as layering and wash trading, but let’s save those for another time.
Why Limit Orders Are Sometimes Not Triggered Despite the Market Reaching the Set Price
Limit orders are pre-set orders that should automatically execute when the market reaches the price point they’re set at (such as selling your BTC when the market hits $55,100). Basically, limit orders are there to ensure your trading strategy is executed even if you can’t watch the market all day long.
Common sense would make you believe that when the market hits a certain price point (the price point your limit order is set at), it’s automatically triggered and you sell off the asset at that price… or the nearest price available if you’re being slipped due to a lack of liquidity (i.e. not enough buyers at that price point).
But sometimes limit orders aren’t triggered. At all. Even when the price moves through where you’ve set them.
Why?
Because those big institutions sweep in before you do, and the exchange runs out of liquidity altogether.
Spreads: An Inevitable Fee When Trading…or Is It?
The spread is the difference between the bid and ask price. You buy BTC for $1 but can only sell it for $0.99. The one cent difference is pocketed by the exchange and the market makers (the big financial institutions ensuring there’s liquidity).
Fair enough. The exchange needs to cover its operational costs and so do the market makers.
But wouldn’t it be nice if you saw the spread up front? And didn’t need to go into your analytics to discover what a trade cost you?
We think so. So we made it visible.
Stop Hunting: A Form of Hunting That Should Be Banned
When using the CLOB, anyone can see the order book. That means that when a trader places an order, anyone can see it.
Market makers sometimes use this to their advantage in a way that isn’t fair for the retail traders.
Sometimes, what happens is that a lot of retail traders place their stop loss orders at the same price point. Let’s say, a lot of people want to sell BTC if the price goes down to $45,000. The market makers can see where in the order book there are clusters of orders, so they see this.
Let’s say the market is currently just above $45,000, like $45,100, and it’s likely to go up. However, the market makers see all the stop loss orders at $45,000 and as they own a large amount of BTC, they sell it off. The price drops to $45,000 and all the stop-loss orders are triggered. Because the stop loss orders are triggered, the price goes down further, let’s say to $44,900. This is when the market makers buy up the asset again, as they count on the market bouncing back as it was artificially made to dip.
Chances are, by the time you realize your stop-loss order was triggered, the market has already bounced back, and if you want to buy BTC again, you now have to pay more than what you sold for.
In other words, the institutions sold their BTC at $45,100, the market went down to $45,000 and a ton of stop loss orders were triggered, so the market dipped further to $44,900. This is when the institutions bought back their BTC at a discount. As the market is currently going up, it’s soon back to $45,100 and if you want to buy back your BTC you have to do it at this price. Meaning you’ve just lost $100 per BTC.
Stop hunting happens mainly when it comes to derivatives trading. And here, it gets even worse than on the crypto exchanges as the exchange is more often than not the market maker. Which means you're competing against the exchange itself. Meaning when you lose, they win. So who do you think will win the most in the end?
Mhm. The exchange.
It’s like gambling at a casino: you might take home a win or two, but by the end of the day the casino will always win more than the other gamblers.
Which is why, on Ouinex, we have market makers for our derivatives platform. You do not compete against us. We make money through the spread (and on spot crypto from the trading fees, too). Which you can see in real time while you trade, so there won’t be any nasty surprises.
The Ouinex No-CLOB Execution Model
On our platform market makers (the big institutions who provide liquidity) can only make prices, not take them. Meaning they don’t compete against you. This is because we’ve set up a Chinese wall so that they can’t look inside the order book they see the current market value and make bid and ask prices and we feed the retail traders the best bid and ask prices they make. In other words, they compete for top-of-the-book best bid offers…meaning they are competing against each other (the institutions) and therefore wanting to provide the best prices to you because they want to be the ones getting your orders.
As the market makers and institutions don’t trade against you, there’s no worry that they will snap up the prices you want. There will be no more issues with limit orders not being executed despite them having reached the set price. Nor will you always be getting negative slippage. In fact, on Ouinex, you can get positive slippage. Plus, you’ll be able to see the estimated slippage in real time as you trade, and set the maximum negative slippage you allow (if it goes over, the order, or part of the order that went over, isn’t executed).
Furthermore, Ouinex doesn’t let market makers see inside the order book. Meaning practices like stop hunting and spoofing won’t happen.
Our no-CLOB execution model isn't our only differentiator. As already mentioned, you can see spreads and estimated slippage in real time as you trade, and we have a unique slippage control tool.
There are other differences, too. For example, the OUIXIndex measures how well our trading platform is doing and the higher the index goes, the lower your trading fees for spot crypto and the higher your yield if you stake $OUIX (our native token). You can also lower your fees and increase your yield, plus get other perks, if you improve your own OUIXPower. Your OUIXPower is measured by how much you trade and stake.
We believe in creating a thriving community of happy retail traders. That means a no-CLOB execution model, as well as creating a real community where we benefit from each other’s success.
When we say we do things differently, we mean it.
The Sum Up
The CLOB (Central Limit Order Book) is used by exchanges like NYSE where large institutions trade against other large institutions. It matches buy and sell orders in a fair system and allows all traders to see inside the order book.
On crypto exchanges, the CLOB turns into an unfair system as retail traders are pitched against massive institutions whose orders are executed faster (they always get the better price) and who engage in manipulative tactics such as spoofing and stop hunting thanks to the order book being visible to all traders.
Ouinex has created a no-CLOB execution model where the big financial institutions are separated from the retail traders and cannot see nor trade inside the order book. The institutions can only make prices and offer up a constant stream of ask and bid prices from which Ouinex selects the best ones, which are fed to the retail traders. This ensures that the institutions are motivated to offer the best prices as those are the ones that will be executed. Basically, Ouinex built a Chinese wall to separate institutions from retail traders (like separating the sharks from the fish in the trading pool).
This offers a much fairer execution model for retail traders. Or, as we like to say, on other exchanges retail traders are underdogs. On Ouinex, they are top dogs.