Synthetic Orders, within algorithmic trading systems and institutional crypto exchanges, refer to a trading instruction that is constructed from multiple underlying simple orders or financial instruments to achieve a specific trading objective that cannot be met by a single direct order. These are not natively supported by the exchange’s order book but are managed by the client’s or broker’s trading system. Their core purpose is to execute complex strategies, manage market impact, or access specialized liquidity.
Mechanism
The mechanism for synthetic orders involves a client-side or broker-side execution engine that breaks down the overarching synthetic order into multiple atomic child orders. For instance, a “peg” order that tracks a benchmark price is synthetically created by continuously submitting and canceling limit orders at the desired peg level. Similarly, a spread order might involve simultaneously placing buy and sell orders on two correlated assets. The execution engine monitors market conditions and dynamically manages these child orders to fulfill the synthetic instruction.
Methodology
The strategic methodology behind synthetic orders is to enhance trading flexibility and achieve superior execution outcomes by abstracting complex logic from direct exchange interaction. It allows traders to implement sophisticated strategies like icebergs, stop-loss orders with specific price conditions, or arbitrage across multiple venues. This framework provides advanced control over order placement and timing, enabling institutions to navigate market microstructure effects, manage slippage, and optimize transaction costs across fragmented and volatile crypto markets.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
