What Is Liquidity Analysis and What Are the Available Charts?

2022-05-03 11:14

What is liquidity analysis?

Eligible high-frequency trading users in the Binance Futures Liquidity Provider Program can view liquidity analysis on the platform, with customized charts (Cost To Trade, Bid Ask Spread, Book Depth, Flow Analytics) for selected USDⓈ-M Futures and COIN-M Futures trading pairs.

How to access liquidity analysis?

You can access the liquidity analysis section from the VIP Portal landing page.

What are the key features?

Book Depth

Market depth is the cumulative sum of all bids and asks on an order book snapshot at different intervals from the mid price. Aggregated market depth is derived directly from raw order book snapshots. The deeper an order book, the larger the quantity of bids and asks on either side of the mid price.

Generally, deeper order books indicate that a market is more liquid and can support bigger market orders.

Binance Futures currently provides aggregated depth for both the bid side and the ask side at the following ranges from the mid price: 1%, 2%, 3%, 4%, and 5%.

For USDⓈ-M Futures contracts, book depth data is available in base asset quantity or notional amount.
For COIN-M Futures contracts, book depth data is available in contract quantity or notional amount.

Cost To Trade

Cost To Trade is the difference between the expected price of a trade and the price at which the trade is fully executed. It can result from two events, such as a change in the bid ask spread between the time a trade is placed and when the trade is filled, or when the order book depth is insufficient and cannot support large market orders.

Simulating Cost To Trade before executing a trade is important in crypto trading and should be incorporated into strategy backtesting. It is worth noting that Cost To Trade is measured in the quote asset of the contract.

Cost To Buy	[(Ask Price1 - Bid Price1) * Ask Quantity1 + (Ask Price2 - Bid Price1) * (Lot Quantity - Ask Quantity1) + ...] / Lot Quantity
Cost To Sell	(Ask Price1 - Bid Price1) * Bid Quantity1 + (Ask Price1 - Bid Price2) * (Lot Quantity - Bid Quantity1) + ...]/ Lot Quantity
Cost To Trade	average(Cost To Buy, Cost To Sell)

For USDⓈ-M Futures contracts, Cost To Trade is defined in terms of the quote asset (USDT or USDC), size is defined in terms of base asset quantity.
For COIN-M Futures contracts, Cost To Trade is defined in terms of the quote asset (USD), size is defined in terms of contract quantity.

If there is an insufficient number of orders on the order book, Cost To Trade is not calculated.

At 04-18 12:57, the Cost To Trade 0.01BTC valued BTCUSDT USDⓈ-M contract (short) was 0.95 USDT (Quote Asset) (daily view)

At 04-18 12:56, the Cost To Trade 10 contracts of AVAXUSD COIN-M contract (long) was 0.011125 USD (Quote Asset) (daily view)

Bid Ask Spread

A bid ask spread is the amount by which the ask price exceeds the bid price. It is calculated for all levels of the order book (from 1 to 10), where the spread is measured in ticks and bps.

Spread in ticks = (Ask Price - Bid Price) / Tick Size
Spread in bps = (Ask Price - Bid Price) / ((Ask Price + Bid Price) / 2)

If either the ask price or the bid price isn’t available at any level of the order book, the spread won’t be calculated.

The bid ask spread chart can be adjusted to see levels ranging from the top of the books to the top 10 levels depending on your preference.