Market Structure
Module 1 of Trading & Markets
Crypto Market Characteristics
Key Differences from Traditional Markets
| Aspect | Traditional | Crypto |
|---|---|---|
| Hours | 9:30-4:00 weekdays | 24/7/365 |
| Settlement | T+2 days | Minutes |
| Custody | Broker holds | Self-custody possible |
| Fragmentation | Few exchanges | 500+ exchanges |
| Regulation | Heavy | Light/varies |
Exchange Types
Centralized Exchanges (CEX)
Traditional order book model, custodial.
| Exchange | Type | Features |
|---|---|---|
| Binance | CEX | Largest, many pairs |
| Coinbase | CEX | Regulated, US-focused |
| Kraken | CEX | Established, fiat on-ramp |
Pros: Deep liquidity, fiat support, fast Cons: Custodial risk, KYC required
Decentralized Exchanges (DEX)
Smart contract-based, non-custodial.
| Exchange | Type | Specialty |
|---|---|---|
| Uniswap | AMM | General trading |
| dYdX | Order book | Perpetuals |
| Curve | AMM | Stablecoins |
Pros: Self-custody, permissionless Cons: Higher slippage, gas costs
Order Types
| Order | Description | Use Case |
|---|---|---|
| Market | Execute immediately at best price | Fast execution |
| Limit | Execute at specified price or better | Price control |
| Stop-loss | Sell if price drops below level | Risk management |
| Stop-limit | Limit order triggered by stop | Precise exits |
Liquidity
What Is Liquidity?
Ability to trade without moving the price.
Deep liquidity: Trade $1M, price moves 0.1%
Shallow liquidity: Trade $1M, price moves 5%
Measuring Liquidity
- Bid-ask spread: Tighter = more liquid
- Order book depth: More orders = more liquid
- Volume: Higher = more liquid
Key Takeaways
- 24/7 markets mean constant opportunity and risk
- CEXs dominate but DEXs growing
- Fragmentation creates arbitrage opportunities
- Liquidity varies widely across venues