Are people spying on your crypto orders?
In short, yes. Because pretty much all crypto exchanges use the Central Limit Order Book, or CLOB.
The CLOB Why Transparent Isn’t Always Fair
The CLOB matches buy and sell orders in the correct order and anyone can look inside it to see what’s going on. Transparent, right?
Sure, but that also means that big financial institutions who have the money and tools to manipulate the market can.
For example:
Lots of people tend to place their stop loss orders around even numbers. The institutions can see where there are a lot of stop loss orders and when market price gets close, sell off some of the asset they hold so that the price dips…and the stop loss orders are triggered.
Why would they do that?
Because when the stop loss orders are triggered the price dips further. That’s when the institution sweeps in to buy at a discount.
If the market is going up, the asset will soon have bounced back and continue its upward trend.
Only, you might no longer hold the asset if your stop loss order was triggered.
That’s stop hunting for you. Other issues are front running, spoofing, and layering.
No-CLOB Execution: Preventing Market Manipulation
On Ouinex, we use a no-CLOB execution model.
We still have an order book, and you can still see inside it.
However, we’ve separated institutions from retail traders. The institutions cannot see inside the order book.
Instead we (as in Ouinex) feed the institutions the current market price. Based on that, they compete against each other to offer up the best bid/ask prices. We then feed the best bid/ask prices to the retail traders. Basically, we enter them into the order book.
What’s more, institutions can only “make” prices. They can’t look inside the order book and “take” prices. I.e., they can’t see your order and snap it up.
But, hang on…what if an institution signed in as a private trader and saw the order book? Well, they still can’t “take prices” when trading as an institution, so it wouldn’t harm you. In this instance it’s not so much the seeing as what they can do with what they see if they’re able to take prices.
The Bottom Line
Transparency is key to any business. We believe in radical transparency. But there are times when you need to protect information so as not to become vulnerable to threats. When it comes to the order book, it’s one of those times. Not everyone can have access to the order book if you want a fair trading system.
Key Takeaways:
- Most crypto exchanges use the CLOB model, which allows all traders to see the order book, but this transparency enables market manipulation by large financial institutions.
- Institutions exploit the CLOB to engage in practices like stop hunting, front-running, spoofing, and layering, which disadvantage retail traders.
- Ouinex uses a no-CLOB execution model that separates institutions from retail traders, preventing institutions from seeing or manipulating the order book.
- Ouinex's model forces institutions to compete with each other to offer the best prices to retail traders, promoting fairer trading conditions.