Cryptocurrency exchanges have a vital role to play in the use of these burgeoning digital assets as they provide a direct link for people to access, use, trade, sell and buy Bitcoin, Litecoin, XRPm or a myriad of other coins.
This position of privilege — providing a direct service to cryptocurrency users — comes with a responsibility to provide a professional and complete service. For Huobi, we take this responsibility seriously and do our best to provide the highest possible performance in several areas.
Exchange liquidity is one area that Huobi prides itself on, and according to popular blockchain data site Coinmarketcap, Huobi ranks first in this metric. However, we like to take it a step further and also provide low slippage, another important metric of a professional exchange.
Understanding Liquidity and Slippage
Liquidity is a common term for traders and financially minded people across many different sectors and it refers to the ability of an asset to be quickly cashed out. Speed (transaction time), price (slippage, transaction cost) and transaction quantity are three of the major aspects that decide liquidity. Methods for measuring liquidity generally include price method, trading volume method, price-volume combination method and time method.
Each measurement method has its own target. For example, the price method mainly focuses on slippage, that is, the price difference index. The trading volume method mainly focuses on depth; the price-volume combination method considers both width and depth, and the time method mainly considers speed and elasticity.
Among them, the slippage spread indicator is the most commonly used liquidity measurement method, because slippage reflects the difference between the estimated transaction price and the actual transaction calculated by the market. The smaller the slippage, the lower the cost of placing an order.
The depth indicator mainly refers to the quotation depth, in other words, the number of orders at a specific price (usually the best bid and offer price). The better the depth, the more obvious the restraining effect on the extreme market, which can prevent large scale of artificial intervention in trading and improve the trading experience of leveraged users.
A look over Coinmarketcap’s liquidity ranking index shows that Huobi Global’s average liquidity index score is 479 points, ranking first among the average liquidity index of global exchanges, Binance ranks third with 424 points, and OKEx ranks sixth with 405 points.
How much slippage spread have I lost?
You can work out how much slippage you have lost with a formula which can be a little intimidating, but it works like this: for the slippage of the order x u, the price and volume of each file from the opening of the market are p1, a1; p2, a2; … Take the first n files, make p1* a1 + p2*a2 + … + pn*an = x, take a part of the nth volume to make the total amount x, and the estimated transaction price = x/(a1+a2+ … + an), slippage = estimated transaction price/m -1.
Where m is the middle price of the opening market, m = (buy one contract + sell one contract) / 2.
Let’s take the BTC/USDT intraday data of Huobi and Binance on June 2 as an example. The transaction slip of Huobi 10 USDT corresponds to a slippage of 0.03bps, while the slippage of Binance is 0.19bps (1bp = 1/10000).
If you think that for an order of 10U, Huobi’s slippage is less than 17.02% of Binance, and the transaction cost of Binance’s spread is 6 times higher than Huobi’s, which has little impact on the overall transaction cost. Then when the amount increases and the transaction frequency increases, the difference in transaction costs becomes obvious.
If it is a 10,000 USDT transaction order, the corresponding slippage of Huobi is 0.38 bps, and the slippage of Binance is 0.53 bps. In other words, in addition to the handling fee, Binance’s users also have an additional transaction cost of 0.15 parts per million more than that of Huobi.
As can be seen from the above figure, for the same price order, Huobi’s slippage is 17.02%-91.01% of Binance, which also means that, without considering the cost of handling fees, the transaction cost of Huobi is 17.02% -91.01% of Binance’s.
Which platform has the best depth?
After taking slippage as an example, let’s talk about the trading depth.
Depth indicators mainly refer to the quotation depth, that is, the number of orders at a specific price (usually the best bid and offer price).
Common depth indicators are 0.5% depth, 1% depth, 3% depth, and 5% depth.
We calculated the above-mentioned depth indicators of Huobi and Binance on June 2 according to the order amount. From the depth point of view, Huobi is way ahead of Binance.
Among them, Huobi’s pending order amount of 0.5% depth is 1.8 times that of Binance, the pending order amount of 1% depth is 1.6 times that of Binance, the pending order amount of 3% depth is 8 times that of Binance, and the pending order amount of 5% depth is 16 times that of Binance.
This data means that the depth of the hot coin has a more restraining effect on extreme markets, can prevent large scale of artificial intervention in trading and improve the trading experience of leveraged users.
In fact, the market skyrocketing and plummeting are not terrible. You can make money from bulls when soaring and make money by shorting when slumping. Even if you can’t go short, the rebound recovery after the plunge is very sharp. For instance, Bitcoin stood at $9,000 less than two months after “3·12”.
The most terrible situation is that the market has no liquidity, no trading volume, or there occurs a liquidation because of the lack of liquidity. It is meaningless for users to trade in such a market, and it is impossible to make money at all.
In general, Huobi’s liquidity advantage is more prominent at present. The slippage of various amounts such as BTC/USDT is significantly ahead of other exchanges, and the gap has a further widening trend. Whether ordinary users or professional institutional users, whether spot users or leveraged contract users, they can choose a trading platform with better liquidity when trading digital assets.