This article will tell you what order book liquidity is and how to compare major companies in real time through TokenInsight Exchange liquidity data!

What is the liquidity of financial assets?

In the financial field, the liquidity of an asset usually refers to the ease with which the asset can be converted into cash and the degree of impact on market prices. The more liquid an asset is, the easier it is to be converted into cash, and the smaller the impact of the exchange itself on the market price. For example, stocks are easier to convert into cash than houses, so stocks are more liquid.

From a price point of view, without affecting the market price, the more liquid assets can be converted into cash, the greater the amount. On the other hand, if the same amount of assets is converted into cash, the smaller the impact on the market price, the better the liquidity of the asset. For example, if you sell $1 million of Bitcoin at the market price in the crypto market, the price of Bitcoin will not fluctuate much. However, if you sell $1 million of altcoin at the market price, the price of the altcoin may be cut in half.

Exchange Liquidity

So how to measure the liquidity of crypto assets in a certain trading venue?

Decentralized Exchange

For decentralized exchanges, the larger the trading pool, the better the liquidity. For example, in the Uniswap V2 pool infographic below, the TVL (total locked volume) of the first-place USDC/ETH trading pair is US$269 million, which is much larger than the TVL of the tenth-place DAI/USDC pool of US$62 million. , therefore, the liquidity of USDC/ETH is much better than that of DAI/USDC.

If you want to know more, you can viewWhat is DEX liquidity and LP (pool)

Centralized exchange

Centralized exchanges basically use the order book model, that is, users complete transactions by placing orders and taking orders.

For example, in the red box in the picture above, it means that one or more users want to sell a total of 2.16230 Bitcoins at a price of 29520. The same goes for the green one below, except that the bottom one is a buy order and the top one is a sell order. The price of any commodity is determined by supply and demand, and the same is true for cryptoassets. When the demand for buying orders increases, it will cause the price to rise, and vice versa.

In the above order book, the more pending orders, the more Bitcoin trading volume can be supported. We can measure the quality of liquidity through the order volume of the order book. The thicker the order book and the more pending orders, the better the liquidity.

Liquidity comparison of centralized exchanges

It is very necessary to choose the exchange with the best liquidity to complete the transaction. The more liquid the exchange, the more money you will get after completing the transaction. Even though Binance is the big one, it’s not necessarily the best option when it comes to trading certain cryptocurrencies.

You can compare the liquidity of different exchanges in real time on the exchange liquidity interface of TokenInsight.

The URL address is: https://tokeninsight.com/zh/dashboard/market-liquidity/aggregated-orderbook

In TokenInsight’s exchange liquidity data, we chose 1% price range for comparison.

So what does this 1% price range mean? Suppose the price of Bitcoin is $30,000, then to calculate the depth of sell orders at this time, we add up all the orders from the current price to 1% higher than the current price, that is, add up the Bitcoin sell orders between $30,000 and $30,300, and get The total amount of sell orders for Bitcoin's 1% price range.

The same goes for buying orders. Add up all the buying orders from the current price to 1% lower than the current price. That is, add up the Bitcoin buying orders from $29,700 to $30,000 to get the buying orders within the 1% price range of Bitcoin. lump sum.

Add the two together and we get the depth of buying and selling within 1% of the Bitcoin price. The chart below is the 1% price depth chart of XRP.

The greater the buying and selling depth (the higher the bars for green buy orders and red sell orders), the better the depth of this trading pair on the exchange.

It is important to note that any depth is for a single trading pair. For example, BTC-USDT and BTC-USDC are two trading pairs, so the calculated depths are also two. Of course, after calculating the depth of multiple trading pairs, we can judge the liquidity of a certain type of asset on an exchange by adding again, averaging, etc.

How is TokenInsight’s exchange liquidity depth calculated?

In the liquidity data chart, we selected the trading pair with the best liquidity for the same currency on different exchanges to calculate the liquidity of the currency. For specific trading pair selection for each currency, please refer to the following table:

The order book changes in real time. We obtain the order book cross-section data of the above exchanges every hour, 24 times a day, and each time we calculate the depth of the 1% price range of each currency. Therefore, by visiting the TokenInsight data page, you can get the buy and sell depth data of the major trading pairs of any currency on any exchange at any time, accurate to the hour.

How to read and use in-depth data charts?

Aggregation depth chart

This chart shows the aggregation depth of the same currency from different exchanges, that is, the bits from different exchanges are obtained at the same time. The liquidity data of the currency trading pair is calculated, the depth data of the price range of plus or minus 1% is calculated, and finally the sum is obtained.

After selecting the currency, BTC is selected as shown in the figure above. In the figure, three sets of data change over time, namely the red sell order depth, the green buy order depth, and the orange bits. Coin price.

When the red area becomes larger, it means that the selling volume of Bitcoin is increasing; while when the green area increases, it means that the depth of buying orders is increasing. The collision of buying and selling depth will affect the final Bitcoin price. If the red and green areas are far apart at the same time, it means that the market depth is poor at this time, which often occurs before and after Bitcoin price fluctuations.

In the area in the upper right corner of the figure, you can choose to use US dollars as the unit of measurement to display depth data, or use the number of currencies as the unit of measurement. The waterfall chart can be switched to a difference chart, as follows:

After switching to "Difference" in the upper right corner, the data changes from the original three groups (sell order depth, buy order depth, bit Bitcoin price) becomes two groups (the difference between buy order and sell order depth, Bitcoin price). When the difference at any point in time is positive, the column in the figure is displayed in green, which indicates that the depth of Bitcoin's buy orders is thicker than the depth of sell orders at this moment; otherwise, it is red, indicating that the depth of sell orders is thicker than the depth of sell orders.

Why are there green pillars most of the time, which means the buy orders are stronger, but the currency price is still falling?

The liquidity of the order book does not determine the currency price. Other factors that affect the price include:

• A large number of buy or sell orders are directly traded at the market price, causing price changes. However, market orders will not appear in the order book data in advance, so they are also reflected in the figure. Not coming out.
• A large number of orders are piled up far away from the market price, causing the transaction depth to appear thick, but as long as the price is not close, there will be no transaction.
• Data is acquired once an hour, so there is some delay in data capture and it is not completely real-time.

Exchange depth comparison chart

The exchange order book depth comparison chart is a comparison of the trading depth of different exchanges. Each set of data (each line) represents the depth changes of an exchange. There are four different dimensions to choose from

• Buy + Sell: The sum of the depth of buy orders and the depth of sell orders at the same time
• Buy - Sell: The difference between the depth of buy orders minus the depth of sell orders at the same time
• Buy order: Only include data for buy orders
• Sell orders: only display data for sell orders

FAQ

• Why use 1% price depth?

For assets with good liquidity, such as Bitcoin and Ethereum, there are many orders on the order book, especially orders close to the current price, and the price accuracy is particularly detailed. The order book data returned by the APIs exposed by many exchanges is a fixed number, which means that orders with prices that deviate further from the current price may be placed after many orders, which objectively limits the inability to obtain data in a wider price range.

Secondly, orders are only meaningful when they are relatively close to the current price. Orders that deviate too much from the current price do not actually reflect liquidity problems.

For Bitcoin and Ethereum we use 1% price range depth; we may add 0.5% or 2% price range depth data in the future.

• Why did you choose to collect data every hour?

As mentioned earlier, the order book is a data that changes in real time. In theory, if you want to fully reflect the changes in the order book, the best way is to maintain a real-time order book database. However, the purpose of our data chart is to compare the depth differences between different exchanges and to observe the liquidity changes of different exchanges over a longer time range, so collecting data samples every hour can achieve the purpose.

Of course, increasing the frequency, such as once every half hour, can improve accuracy. However, after testing, on the basis of once an hour, we found that higher frequency has limited improvement for the data analysis itself.