How Do Standardized Derivatives Contracts Facilitate Order Book Trading?
Standardized contracts have pre-defined terms such as expiration date, contract size, and underlying asset specifications. This uniformity makes them fungible and easily tradable, which is essential for the high-volume, automated matching of an order book.
Without standardization, every trade would require bilateral negotiation, rendering the order book model inefficient and impractical. Standardization lowers transaction costs and increases market access.
Glossar
Standardized Derivatives Contracts
Contract ⎊ Standardized Derivatives Contract is a financial instrument with uniform terms and conditions that is traded on an exchange.
Standardized Terms
Definition ⎊ Standardized Terms in derivatives refer to the universally accepted conventions, definitions, and specifications used across the industry for instruments like futures and options, ensuring fungibility and clear market communication.
Order Book
Depth ⎊ An order book represents a listing of buy and sell orders for a specific cryptocurrency, option contract, or derivative, displaying price and quantity at various levels.
Order Book Model
Structure ⎊ The Order Book Model organizes trading interest by listing all outstanding buy (bid) and sell (ask) orders sequentially based on price and time priority, functioning as the traditional backbone of centralized exchanges.