Net Order Flow represents the aggregate difference between buy orders and sell orders over a specific period for a particular asset, typically derived from executed trades rather than resting limit orders. In crypto, analyzing net order flow provides insight into immediate market pressure and potential price direction, indicating whether buyers or sellers are more aggressive.
Mechanism
Calculation of net order flow involves aggregating all market buy orders and market sell orders executed on an exchange or across multiple liquidity venues. A positive net order flow indicates stronger buying pressure, while a negative flow suggests stronger selling pressure. This data is often collected from exchange APIs, processed in real-time, and normalized to account for varying liquidity sources. The metric helps distinguish true demand and supply from passive liquidity provision.
Methodology
The strategic use of net order flow analysis informs short-term trading decisions and market microstructure strategies. Traders utilize this metric to identify order imbalances, anticipate price reversals or continuations, and gauge the strength of current trends. For institutional request-for-quote crypto trading, understanding net order flow assists in optimal order placement and minimizing market impact, as it provides a clearer picture of immediate market sentiment and available liquidity beyond simple bid-ask spreads.
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