Markets and Orders

What is a Market?

A Market is where people meet to trade. It used to be a physical space where merchants would gather at arranged times, and shout out their goods and prices. Now we can use the internet to trade fairly, transparently and immediately across the world.

A Market is made up of two Tradeable Items. Each Tradeable Item must be commodified, meaning that each unit of the tradeable item is the same as the next, like a mass produced item, or currency. A tin of beans is a commodity in that it does not matter which particular tin you buy, all the tins are the same. A dollar is a commodity in that you do not mind which note you have, they are all the same. In an electronic market, some amount of one item is agreed to be exchanged for some amount of the other, like 12 tins of beans for 6 dollars.

On this platform you can define your own Tradeable Items (such as the product you provide, via its SKU for example). You can create Markets between items and currencies, or items and other items (like swap markets), or currencies and other currencies. The Tradeable Items are private to you, and the Markets you create are private to you. You can control which other Users are allowed to trade on the Market and which are allowed to see Price data.

Participants can submit Orders, and the platform matches them on price. When a match is made, a buyer and seller have agreed to trade some quantity at a price. This matching event is called an execution, and a Fill record is created for each Order to record the details of the execution. As the Market Owner, you can open, close or halt Markets as you require. Markets can have a timed expiry date, so that time-limited commodities (eg tickets) are not traded beyond their meaningful lifetime.

Why would you use a Market?

The alternative to a Market is fixed pricing, the way many businesses operate. If you fix your price and it is too low, you lose potential profits. If you fix your price and it is too high, you drive away business. A Market allows supply and demand to meet, and agree the perfect price that both sides find fair.

What is an Order?

An Order expresses intent: quantity, side (buy/sell), and price constraints. An example buy Order would be "Buy 12 tins of beans for a maximum of 6 dollars". The platform pulls all the Orders into one place and matches them according to rules. Buy Orders are sometimes called bids, and Sell Orders are sometimes called offers. The Orders with the best prices are matched first.

The best bid (Buy Order) is the one with the highest price. The best offer (Sell Order) is the one with the lowest price. If a Buy Order price is higher than a Sell Order price, the two Orders can be matched at a price mid-way between the two. If there is no possible match, the Orders rest in the Market and wait for more Orders to come in. Price data shows traders the available prices and quantities in the Market, helping them decide whether they want to trade.

If two bids or offers have the same price, a rule is applied to determine which is considered the "best" Order. If the First-In-First-Out rule is used, the Order that arrived at the Market first is considered the best, and this is the most commonly used rule. If the Biggest-First rule is used, the Order with the largest requested quantity is considered the best, and this is used when the Market Owner wants to preferentially serve high-volume traders.

What Order Types are Supported?

• Market Orders: No price specified; these Orders accept whatever the best bid or offer price is on the opposite side.
• Limit Orders: Price specified; these Orders will not trade at a price worse than their set limit price.
• Average Limit Orders: Price specified; these Orders can trade at a worse price provided the final average price is as good as their set limit price.
• Stop Orders: Price optional; Stop Orders become live only when a trigger price is reached, and become market or limit Orders once triggered.
• Timed Orders: Price optional; Orders can be Good-Til-Cancel (GTC), Good-Til-Date (GTD) or Day Orders; GTC Orders work until they are manually canceled. GTD Orders work until a defined date-time is reached, at which point they self-cancel. Day Orders work until the Market is closed.
• Effective Orders: Price optional; these Orders have a trigger time, when they are released into the Market.
• Combination Orders: Orders can be set to be multiple types ie Effective Stop Orders that are Good-Til-Date.

What is a Fill?

A Fill is an agreement on price and quantity produced by matching. Each Order gets a Fill for a single execution, giving the Order the details of the counterparty and the agreed price. The Fill is the operational result of the Market, what the Market is designed for. The Owner of the Market downloads the Fills and can then arrange for the agreements to be settled in the real world. The Market and the platform do not hold any goods or currency. Their role is only to generate agreements between trading counterparties.

What is Settlement?

If a Fill is an agreement to trade a quantity at a price, then a settlement is the physical enactment of the agreement. For example, a trade is settled once goods are paid for and delivered. This platform does not support settlement. The intention is that the Owner of the Market is the business or individual that will take the Fill agreement and then send goods and recover payment at the Fill price. In this way, the Market is concerned solely with price negotiation, and the Market Owner then controls how the agreed Fill is settled.

Price Negotiation Only

By removing settlement from the process, the Market allows Market Owners to remain in control of how they supply goods and recover funds. The platform becomes abstract, and the mechanics of a Market become applicable regardless of the goods or currencies involved. Exposing the platform as an API allows existing businesses to plug-in Market functionality purely for the price negotiation stage. The businesses involved keep their website, sales process and delivery systems exactly as they are, all that changes is the price.