Synthetic Order Generation involves creating a virtual trade order that does not directly interact with a specific exchange’s order book but is instead managed by an intermediary system, often composed of multiple underlying real orders. In crypto, this enables sophisticated trading strategies like pegged orders or iceberg orders across fragmented liquidity sources.
Mechanism
This mechanism entails a smart order router or an execution algorithm receiving a single synthetic order instruction and disaggregating it into several real orders, distributed across various exchanges or liquidity pools. The intermediary system monitors the execution progress of these real orders and adjusts subsequent placements to maintain the parameters of the original synthetic instruction.
Methodology
The methodology behind synthetic order generation includes real-time monitoring of market depth, latency, and available liquidity across all connected venues. It employs algorithms to optimize execution quality, minimize market impact, and manage residual risk, effectively abstracting the complexities of multi-venue execution for the end trader.
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