Let's Make a Trade

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5 min

ats-screen

5 min

In this incredibly exciting edition, we will discuss trading.

Ok, maybe not so exciting, but here is part one of our condensed overview about equity trading (including blockchain securities) that may be a review for some and hopefully useful for many.

When we say equity trading, we’re talking about trading stocks.  When trading stocks, the most important thing is information--and a big part of that information is market data which can be real-time or historical.

Real-time means trading market information sent to a trader immediately.  Examples of this are level 1 and level 2 data.

Level 1 data is the best bid price and the best ask price at that moment, as well as the last sale or executed transaction in the market.

Level 2 data is called “depth of book” because it shows many levels (deep) into the order book.  The order book is ALL of the buy limit orders (bids) and sell limit orders (asks), and includes the amount (known as shares in the equities world) as well.  Live orders are arranged in a price first, then time priority.  This means higher bids go to the top, but if there are two bids at the same price, liquidity will go to the first order entered.

Most professional traders use level 2 data because it gives them a much better understanding of the full supply and demand picture for a security.  For example, a retail trader may only have access to level 1 data and may see a stock trading for $1 and decide it’s cheap and a good buy.  But level 2 data can show a massive group of asks at different prices starting from $1.02 - meaning there is strong selling pressure and the price will likely go down.

Historical data shows a trader what has already happened in the markets.  It includes the time and sales which shows the older prints, and of course the charts. The past history of a security and the company that it represents can be analyzed endlessly to somehow predict what will happen in the future.

On the topic of charts: we will not even attempt to somehow squeeze “all about charts” in here.  But a few things: charts should always be looked at because they can at the absolute minimum give you the range in the trading price.  They can also make it easier to identify support levels because of their visual nature.  For people like technical analysts, charts have patterns that can be identified with tools like Bollinger Bands and moving averages.  These patterns can potentially predict where the price will be in the future.

News, balance sheets, quarterly reports, disclosures, etc. are all examples of information used in the markets, but not actually market data (it’s not generated by the market).  This type of information is generally historical (news is already old when you see it), and it is not always as straightforward as prices on a level 2. News is essential because it can trigger substantial price movements.  But validity, timing, and interpretation are always major concerns for traders and investors.

Trading Blockchain Securities

Blockchain securities are registered securities and trading them follows the same process as equity securities except the trade is being processed on the blockchain.  They must submit quarterly reports with balance sheets to the SEC - which then makes them publicly available.  Companies must also disclose all relevant business events to shareholders.

Ok, let’s pause here.  We’ll catch up next week when we go over order types, order matching, and reading the blotter.  All this and more in Trading Part Two!