The aim of this page is to introduce players to real world trading concepts and jargon which they will also encounter in the world of prosperity.
A central marketplace where buyers and sellers meet to arrange trades in certain products. These products can be a wide range of things. Commodities, Stocks, Bonds, ETFs, Derivatives, Currencies, Cryptocurrencies. Modern exchanges are often heavily relying on digital infrastructure, and to a large extent match buyers and sellers using automated matching of BUY and SELL orders.
An order is a binding message sent by exchange participants to indicate a willingness to buy (sell) a certain amount of a specified product at any price up to (starting from) the price indicated in the order. Some general properties of an order:
Depending on the context there might be additional properties to an order, but the ones above are fundamentally shared between all orders. The type of orders that we are concerned with in Prosperity (and at market makers like IMC) are the type of orders sent to central marketplaces called Exchanges. If orders sent by other entities “match” with the original order, meaning that a trade can be arranged where both the conditions of the sell as well as the buy order are met, the trade is “executed” (more about order matching below)
A bid order, is financial jargon for a BUY order. The price of such a bid order is typically referred to as the “bid” or the “bid price”. If traders refer to the “best bid”, they typically refer to the price corresponding to the highest active buy order for a certain product, which is the highest price another market participant can decide to sell the product at.
Similar to “Bid Orders”, but referring to SELL orders.
How order execution works on the island exchange (and on most real-world exchanges): a BUY order will be immediately executed if there is an active SELL order in the market with an associated price equal to or lower than the price associated with the BUY order (the lower the sell price the better it is for the buyer). In that case the buyer will buy an amount equal to the minimum of the two order quantities, at the price of the SELL order. If the SELL order quantity was lower than the BUY order, that means only part of the BUY order gets executed, and a resting order (equal to the BUY order quantity minus the SELL order quantity) remains in the market. If there is no SELL order with a price equal or lower than the price of the BUY order, the full order remains in the market. If an order remains in the market, the bots might decide to send crossing sell orders at a later point, which would then mean that at that point the order still trades.
By symmetry, SELL orders will trade immediately against any BUY orders with a price equal or higher than the price associated with the SELL order (the higher the buy price the better it is for the seller). Beside from that SELL orders behave in the exact same way as BUY orders.
Orders for a certain product are collected in something called an Order Book. While there are multiple ways to visualize an Order Book, a common representation is shown below. The middle of the book shows the different price levels. The left side, or bid side, shows the combined quantity of all the BUY orders which have that price associated with them. On the right side, or ask side, the combined quantity of all the sell orders per price level is represented. As described above, once there are buy and sell orders at the same price level, or even buy orders at a price level above the price level of the lowest sell order, orders are matched and trading takes place. We would call an order book with no bid orders at or above the level of the lowest ask order “uncrossed”. No trading is then possible. If there are buy orders above the lowest price level with ask orders, we would call the book “crossed” and trading is possible.