Documentation
Average Limit Orders
Average Limit Orders can help Orders execute more quantity.
Ordinary Limit Orders
An ordinary LIMIT Order is very simple. If we consider a Buy LIMIT Order, it has a quantity of Transactional Tradeable Item to buy and a maximum price above which it must not execute. Similarly, a Sell LIMIT Order has a quantity of Transactional Tradeable Item to sell and a minimum price below which it must not execute.
When a LIMIT Order matches with a MARKET Order, the LIMIT Order dictates the execution price. When a LIMIT Order matches with another LIMIT Order, they might have exactly the same price, or they may overlap. An overlap occurs when the price of the Buy Order is higher than the price of the Sell Order.
When there is an overlap, the execution price is set between the two limit prices so that both Orders receive a price improvement. The system also ensures that the quantities exchanged are valid real-world amounts, based on the Tick Sizes of the Tradeable Items. This avoids fractional quantities and rounding errors.
In this overlap situation, both Orders get what is called an improvement.
Improvement
LIMIT Orders that match and which overlap share the improvement, with both sides getting a price that is better than their limit price. The Buy Order pays less than the limit price, and the Sell Order receives a price better than its limit.
With an ordinary LIMIT Order, the improvement has no impact on later executions. If a Buy Order goes on to match again, the limit price on the Order is respected as usual.
With an Average Limit Order, the Order can use the improvement to change its current limit price, while still respecting the original limit price across the Order as a whole.
Average Limit Orders
With an Average Limit Order, the Order is given a conceptual wallet containing an amount of Settlement Tradeable Item that it uses to exchange for Transactional Tradeable Item amounts. If the Order gets an improvement, it effectively has a bit more than expected in its wallet, so it can now change the limit price so that it can use that improvement to trade more.
An Analogy: Scooter Goes Shopping
This is best explained with an analogy of sending an assistant (gopher?) to the shops to buy some Apples. A limit order is like an instruction to someone to buy something without paying more than a price. In this analogy, we will see how an ordinary LIMIT Order and an Average Limit Order differ.
You are a busy Director of a somewhat chaotic Theatrical Variety Show, and you ask your assistant Scooter to the local shop to buy 10 Apples. You give Scooter five dollars.
In one universe, you send Scooter off to buy Apples, and you instruct him not to pay more than 50 cents for any Apples, which is effectively a limit order - on each purchase, respect the 50 cents per Apple limit.
In another universe, you send Scooter off to buy Apples, and you ask him to not spend more than the 5 dollars you have given him, which is an average limit order - over the whole order, respect the 5 dollar limit.
Superficially, the two scenarios are similar, but the outcome can be different depending on what the shop is selling.
At the shop, we have 4 Apples on clearance sale at 30 cents, and 6 regular Apples at 60 cents.
The Ordinary Limit Order Scenario
In the ordinary limit order scenario, Scooter can buy the 4 Apples on sale at 30 cents. He cannot then buy the 6 Apples at 60 cents, because he has been told to not break the limit of 50 cents per apple.
Scooter has to come back from the shops with 4 Apples, bought at 30 cents, $1.20 in total, and he gives you your $3.80 change.
The Average Limit Order Scenario
In the average limit order scenario, Scooter buys the 4 Apples on sale at 30 cents, spending $1.20. He has $3.80 in his pocket, and these 6 Apples at 60 cents cost $3.60, so he has enough to buy the 6 Apples at the regular price.
Scooter comes back from the shops with 10 Apples, having bought 4 at 30 cents and 6 at 60 cents, totalling $4.80, and gives you 20 cents change.
Comparing the Outcomes
In this analogy, the outcomes are very different. In the ordinary LIMIT Order case, Scooter has been told to respect the per Apple price, and he cannot use the potential buying power in his wallet to complete the order. In the Average Limit Order case, Scooter is able to buy the on-sale apples, and then use the remaining money in his wallet to buy the more expensive apples and complete the order, even though the regular-price Apples cost more than the 50-cent per-Apple limit.
Average Limit Orders Trade More
The improvements that arise when LIMIT Orders overlap can be used by Average Limit Orders to execute additional quantity while still respecting the limit price across the Order as a whole.
From HaggleDigital's perspective, we want all of our Users to trade as much as possible. With Average Limit Orders, Users have a better probability of completing their Orders, which is both good for them, and good for the exchange.
Prices
Price data shows working LIMIT Orders, and the details for the last execution. Markets can be configured to tailor Price data to fit your exact requirements.