How Does the Aggregation of Order Books across Multiple Exchanges Affect Perceived Depth?
Order book aggregation combines the liquidity from several different exchanges into a single, consolidated view. This provides a much deeper, more accurate perception of the total market liquidity for an asset.
While it doesn't create new liquidity, it makes the existing depth across venues more visible, which can encourage larger trades and potentially contribute to tighter effective spreads by routing to the best price.
Glossar
Aggregation
Process ⎊ Aggregation in financial markets involves collecting and combining data from multiple sources to form a single, representative value.
Multiple Exchanges
Redundancy ⎊ Operating across multiple trading venues provides essential redundancy, mitigating the risk of a single point of failure impacting a trader's entire position or collateral base.
Exchange Fee Structures
Structure ⎊ Exchange fee structures delineate the costs associated with executing trades or utilizing services on a given platform, fundamentally impacting profitability and strategy implementation.
Market Liquidity
Depth ⎊ Market liquidity, within cryptocurrency and derivatives, fundamentally reflects the capacity to execute substantial transaction sizes with minimal price impact; this is particularly critical in nascent digital asset markets where order book depth can be comparatively shallow.
Order Books
Structure ⎊ An order book is a real-time, electronic ledger maintained by an exchange that lists all outstanding buy and sell orders for a specific cryptocurrency, option, or derivative contract.