How to Execute Various Order Types on Nftperp?

NFTPerp offers a unique trading platform tailored for the NFT market, blending the strengths of both Automated Market Makers (AMMs) and decentralized limit order books (DLOBs) through its Fusion AMM model. This hybrid approach ensures scalable liquidity, independent price discovery, and direct counterparty interactions for traders. The platform also introduces a revamped insurance fund model with both protocol-owned and user-funded components, enhancing system robustness. 

Additionally, NFTPerp provides a range of order types, including market, limit, stop-loss, and take-profit, catering to various trading strategies. 

Now, how do you make use of these different order types in your trading strategy? Let’s have a look!

Market Orders

Alice believes that the price of a BAYC NFT collection will fall in the next few minutes due to a recent announcement. She wants to take a short position on the NFT immediately without waiting.

Alice places a market order to short the NFT at the best available price. Her order gets executed instantly based on the current market conditions.

When a trader places a market order, they are expressing their intent to buy or sell an asset immediately.  The Fusion AMM employs a smart strategy when processing market orders. Instead of relying solely on the order book or the AMM, it evaluates both concurrently. Once a market order arrives, the engine checks its size and scours the order book for matches. If no suitable limit orders exist on a specific price tick, the AMM steps in to fill the gap. This mechanism, seamlessly blending the two sources, ensures the market order is efficiently met – i.e., consider how specific price ticks in the order book might handle parts of a sell order, with the AMM addressing any remaining liquidity gaps in between those ticks.

Limit Orders

Bob thinks that the current price of Pudgy Penguins is too high at 4.90 ETH. He’s willing to buy it, but only if the price drops to 4.0 ETH level which he believes is fair.

Bob places a limit order at his desired price. If the market price drops to Bob’s specified price, his order will be executed. If not, the order remains on the DLOB until it’s either filled or canceled by Bob.

These are orders that specify a price at which the trader is willing to buy or sell. When a trader places a limit order, they specify the amount they wish to trade, the price at which they’re willing to trade, and the direction of the trade (buy or sell). This order is then stored on-chain within the DLOB. 

As market conditions fluctuate, the protocol continuously checks for market orders or other limit orders that match the criteria of the stored limit orders. When a match is found, the orders are executed against each other. If market conditions shift and the specified price of the limit order is no longer favorable, the order remains in the DLOB, waiting to be either filled, canceled by the trader, or until it expires.

Conditional Order Types

Take Profit and Stop-Loss orders are conditional orders that are triggered when certain price conditions are met. They are submitted on-chain and then executed off-chain by a network of keeper bots. The keeper bots are incentivized by increasing keeper fees based on how close the execution price is to the mark price. Any conditional order type rests in the on-chain order book until its condition(s) are met. At this point, it is treated the same as a market order.

For example, if Dave has a BAYC NFT that has been increasing in value and is currently at 25.01 ETH. However, he believes the price will rise further and wants to lock in his profits if the price reaches a certain high point, but he doesn’t want to monitor the market constantly.

Dave places a take-profit order at his desired price of 29.02 ETH. If BAYC’s price rises to that level, it will be sold automatically, ensuring Dave captures his profits.

Similarly, for stop-loss, suppose Carol owns an NFT that she bought at a higher price. She wants to minimize her losses if the price continues to drop beyond a certain point.

Carol places a stop-loss order at a specified price below the current market price. If the NFT’s price drops to that level, her position on her NFT will be sold automatically, preventing further losses.

These conditional orders are a bit more advanced. They are designed to be executed only when certain predefined market conditions are met. When setting up a conditional order, a trader defines a condition, such as a specific price point. This order is then stored on-chain but remains inactive until the set condition materializes. 

External entities, known as trigger keepers, are responsible for monitoring the market and the on-chain conditional orders. When the market hits the condition set in the order, these keepers activate the order. Once activated, the conditional order behaves like a market order: it first seeks a match in the DLOB, and if not fully executed, turns to the AMM for completion. To ensure timely execution, keepers are incentivized with fees, which increase as the market price approaches the order’s trigger price.

In essence, NFTPerp V2’s order execution mechanism, with its blend of DLOB and AMM, offers traders a seamless and efficient trading experience, ensuring various order types are executed optimally while minimizing potential pitfalls like slippage.