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Example to clarify: Buyer tells the trader to buy for (up to) 140. Seller wants to sell for (at least) 120. Trader gives 120 to seller, gets 140 from buyer, ge
by erwincoumans 5y ago
Example to clarify:
Buyer tells the trader to buy for (up to) 140. Seller wants to sell for (at least) 120. Trader gives 120 to seller, gets 140 from buyer, gets to keep 20 for himself.
- kqr 5y agoYes, and that's exactly how the middle man is compensated for the risk they take by buying something from someone they don't want, hoping to resell it shortly after.
- erwincoumans 5y agoIf this happens on an exchange (such as Coinbase), there is no risk, since the trader/middle man knows that there is a buyer for 140 and a seller for 120, so he can 'front run', buy at 120, sell at 140, keep 20.
- gpderetta 5y agoIf the seller is already in the market for an ask at 120, and there is a buyer ready to buy at 140, no trader can come in an pocket the difference in a regulated market. If there is no buyer yet and a trader suspect there might be in the future, it could try to buy at 120 and hope to sell in the future at 140. Of course the the sale might not materialize and they will need to take the risk.
- nly 5y agoBest execution kicks in on most exchanges. The second order never hits the order book (nobody observing the book will even see it) and the trade executes at the price of whoever put on their bid/offer first.