The Best Cryptocurrency Exchange is not an Exchange — SFOX Edge

The Problem: How to Find the “Best” Cryptocurrency Exchange in an Opaque Marketplace of Crypto Trading Venues

If someone asked you, “What’s the best cryptocurrency exchange?”, an obvious answer might be, “The exchange with the best prices.” But the more you try to understand which trading venue has the best prices, the more you’ll realize that’s not the right question to ask at all.

Fees

Fees may be the first factor that many traders think of when considering which exchanges have the best prices: how many bps does the exchange explicitly charge per trade? How is this fee balanced against any volume discounts that the exchange may offer?

  1. Different trading venues use incommensurable fee structures. While most cryptocurrency exchanges show explicit fees associated with any given trade, some other venues-like many OTC desks, for instance-may have better overall prices but bake their margin into the asset prices that they quote, not charging any additional fees. This makes it all the harder to settle the question of best price just by looking at fees.
  2. Many trading venues undercut their clients with hidden fees. “Hidden fees” are the myriad ways besides explicitly quoted fees through which trading venues can hinder trade execution. We’ll consider three of these more hidden factors below.

Spread

Less obvious than fees but just as impactful on pricing and trade performance is the spread between a cryptocurrency exchange’s best bid and best ask for an asset like Bitcoin.

Liquidity

Liquidity is the question of how “filled out” an exchange’s order book is. Oftentimes, trading venues will have very small quantities of assets like BTC at on top of their books, meaning that traders looking to make medium- or large-quantity orders could end up being pulled deeper into the order book in order to fill their order, incurring significant slippage in the process. For professional traders, minimizing slippage is critical to successfully scaling a trading strategy: a serious trader needs to know that their trading venue is providing them the best bid when they’re selling an asset and the best ask when they’re buying it. When it comes to individual crypto exchanges, it’s virtually impossible to determine whether or not that’s the case.

Actionable Prices

Even if an exchange has compelling prices along all the previous dimensions, its pricing won’t mean much if traders can’t reliably use the order book to fill orders. There are three key ways in which this reliability might be threatened:

  1. Time to execution. Not all trading venues are created equal, and poor infrastructure could create delays between the time you submit an order and the time it’s actually sent to the book. In that time, the book might have moved away from your limit order, or the order you were looking to take may have already been taken.
  2. Exchange outages. When exchanges experience unexpected downtime (as we’ve seen happen fairly regularly in the last few months), users can end up being locked out of their trading interface, unable to make new orders-nor even to edit open orders.
  3. Bots. Virtually all major exchanges are crawling with trading bots that can often prevent trades from filling with tactics like penny-jumping, using your trades as signals for their own strategy without ever allowing your orders to be filled. Especially for users who are trading manually rather than algorithmically, this has the potential to significantly impede trading strategies.

The Solution: One Low-Latency Order Book Unifying All Crypto Trading Venues from One Account

Log into your SFOX account and you’ll find an unassuming order book that looks like any other: a choice of markets for seven cryptocurrencies, a bid side, an ask side, and a spread.

Clearer Fees: Net Prices Rather than Gross Prices

To give SFOX traders a dead-simple understanding of where the current best prices for cryptocurrencies are, fees and all, SFOX’s order book uses net-price routing (that’s what the “NPR Active” in the top-right-hand corner of the book means). This means that all the prices you see on SFOX’s book already include the fees charged by the various venues listed on the right-hand side of the book. That makes it really easy to see that OX, an exchange, currently has the best bid, marketwide, for BTC, while B2C2, an OTC desk, currently has the best ask, marketwide-even though those two trade venues have totally different fee structures.

Tighter Spreads: The Best Bid and Ask from the Entire Crypto Market

You’ll notice in the above example of SFOX’s order book that the trading venue with the best current bid is not the same trading venue that has the best current ask. That’s a common feature of crypto markets: as the books of individual exchanges shift over time, some might happen to have more competitive asks while others have more competitive bids.

Deeper Liquidity: Every Crypto Order from Major Trading Venues in a Single Book

By the same token as it provides the tightest spreads anywhere, the SFOX integrated order book also provides the deepest liquidity. No matter how deep the book or your preferred exchange is, an integrated order book that includes your preferred exchange plus many other exchanges will be deeper. This is especially true since SFOX’s order book includes liquidity from OTC desks such as B2C2, which typically offer liquidity designed for large trades but typically aren’t accessible in an exchange-style interface built for active traders.

Resiliency and Efficiency: Always-Accessible Prices

Over the last 5 years, SFOX has repeatedly invested in its infrastructure to ensure that traders can always easily capture the opportunities its integrated order book presents. The result is a platform that lets you focus more on your trading strategy and less on hoping that your trade fills.

  • Transactions execute in 5 milliseconds. Once you’ve hit the button to place your order, you don’t need to worry about it reaching the order book-it’s probably already there.
  • The SFOX platform and order book stays up even if one or several of the venues to which it’s connected experience downtime. SFOX has 99.99% uptime, allowing its traders to keep making trades and managing their positions even if exchanges have operational hiccups and go down.
  • SFOX’s advanced order types are built to dodge bots. Order types like the recently upgraded Hare are designed to take advantage of the integrated order book by moving your order in between different trading venues until it fills, working to stay ahead of bots and find the best price execution no matter what.

Trade Smarter

If you’re only as good at the venues at which you trade, then why aren’t you trading at all venues at once? The integrated order book is at the heart of how SFOX creates edge, but it’s also just the tip of the iceberg in terms of the toolkit they’ve been giving savvy crypto traders for half a decade.

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SFOX

The first crypto prime broker for sophisticated traders and institutional investors.