Passive Fills in crypto trading refer to order executions that occur when a limit order placed on an exchange or liquidity pool is matched by an incoming aggressive market order, without requiring the passive order to cross the spread or initiate liquidity. These fills are typically associated with lower transaction fees or even liquidity rebates, as the passive order contributes to market depth by providing liquidity. Their purpose is to incentivize market makers and offer preferential pricing for non-aggressive order placement.
Mechanism
The mechanism for Passive Fills operates within an order book matching engine. A participant submits a limit order (e.g., a buy order below the current ask price or a sell order above the current bid price) which rests in the order book. When another participant places a market order or an aggressive limit order that “takes” this resting liquidity, a passive fill occurs. The exchange’s pricing model often applies a “maker-taker” fee structure, where the “maker” (passive order) receives a rebate, and the “taker” (aggressive order) pays a fee.
Methodology
The strategic methodology for achieving Passive Fills involves algorithms and trading strategies designed to consistently provide liquidity at or near the best available price without immediately crossing the spread. Market makers and institutional traders employ these tactics to earn liquidity rebates, reduce trading costs, and manage inventory efficiently. This often requires sophisticated order placement algorithms that adapt to real-time market conditions, dynamically adjusting limit order prices to optimize for fill probability and passive execution within highly competitive crypto markets.
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