With the development of decentralized exchanges (DEX), their functions have become more advanced, often coinciding with centralized exchanges (CEX). One of these features is the ability to place limited orders, which provides more flexibility and efficiency for DEX traders. This article discusses the features of the current border order and its possible implementation.
Unlike a market order, which is executed immediately at the last market price with the possibility of slipping, a limit order is executed at a predetermined price as soon as it is reached. Market orders are used by default in all DEX automatic indicators based on a market maker. It’s easy and convenient for beginners. A market order is guaranteed to be executed or fail due to factors such as maximum price effect.
In turn, limit orders are intended for more advanced traders, as they require an analysis of the market situation and an assessment of the probability that the asset price will reach a certain level. Handling requests to cut backfill on the blockchain also requires accounting for gas costs, which, depending on the volume of demand, can make trading more or less profitable.
However, limit orders are a great tool for professional market makers and can significantly increase the profitability of a trade.
As with CEX, a set of decentralized protocols, including SushiSwap, a 1-inch maximum and 0x protocol, offer limited command functionality. As a result, advanced features are available that have never been seen before in DeFi, including request request (RFQ), dynamic pricing, and conditional execution.
Request a quote
Quotation requests can be considered as over-the-counter (OTC) decentralized trading systems that allow market makers to transfer liquidity from CEX to DEX users. This gives the best prices for large and medium-sized trades.
The RFQ system aims to simplify and profitably provide large volumes of DEX liquidity, as well as reduce risk. Because market makers can choose when and with whom they want to trade, they can maximize the relationship between retail order flow and arbitrage flow.
The RFQ feature allows Primary Market Makers (PMMs), who typically trade cryptocurrencies on CEX or OTC options, to trade large volumes of low-risk cryptocurrencies on DEX. Thanks to RFQ, PMM brings significant liquidity from CEX to DEX.
For example, if a user wants to exchange 1000 Ether (ETH), the specified request protocol reaches PMM and asks them if they want to do this exchange. If interested, send a signed statement. When the order is completed, PMM sells ETH on DEX to another chain for a profit, while DEX benefits from the liquidity from PMM. In this way, PMM efficiently transfers liquidity from CEX and other chains to DEX.
In addition, RFQ provides better gas efficiency. Although it would cost 90,000 gas to fill a single market order, an RFQ order would only cost 70,000 gas (these numbers are approximate).
Conditional workmanship and dynamic pricing
The conditional execution and dynamic pricing functions of the 1-inch border order protocol can facilitate a number of functions. With conditional execution, users can maximize profits from trades by specifying order execution conditions. With dynamic pricing, swap rates are calculated using smart contracts based on supply and demand.
Auctions are a promising application for dynamic pricing. You can place a limit order to make the price go up or down (as in a Dutch auction). Similarly, the dynamic pricing feature can trigger initial DEX bids and other token sales based on an auction model or non-perishable token (NFT) auctions.
Related topics: What is the scope of action behind the Kusama parachin auctions?
Stop and track orders
Stop orders and subsequent stop orders are another example of conditional execution and dynamic pricing functions.
Stop orders are only placed when certain price conditions are met and price data is provided by oracles. For example, “Sell for $ 2000 when Oracle is below $ 2100.” Stop orders can be used with market or border orders, which gives traders more influence. Flexibility and ability to create more complex strategies.
Basically, the difference between limit and stop orders is that limit orders are entered in the order book and anyone can see them, while stop orders are only sent when a predetermined price has been reached.