Trading

Trading changes the asset a participant owns. The mechanism between the input and output determines who supplies liquidity, how the price forms, which claims are created, and who absorbs execution and inventory losses.

Start with the transaction

input asset → venue and pricing mechanism → output asset

A complete analysis then asks which route executed, which state changed, which fees moved, and whether the user-authorized price and amount bounds held.

Concepts in this family

• Decentralized exchange separates the venue from any one trading mechanism.
• Swap follows the asset exchange and settlement constraints.
• Liquidity pool and automated market maker separate inventory from its pricing rule.
• Liquidity provider follows the pool claim, fee payer, inventory exposure, and withdrawal accounting.
• Slippage and price impact distinguish total execution difference from the movement caused by the order itself.
• Arbitrage explains cross-venue price alignment and its costs.
• Impermanent loss compares an AMM position with an explicit hold benchmark.

A reusable trading checklist

For every trade, record:

1. input and output assets, amounts, decimals, and recipients;
2. quote time, reference price, price direction, and route;
3. market mechanism, available depth, and counterparty;
4. fees, gas, rebates, incentives, and transaction-ordering effects;
5. minimum output, maximum input, deadline, and partial-fill rules;
6. settlement state on success, failure, expiry, and refund; and
7. which trader, maker, liquidity provider, solver, or protocol absorbs each loss.

This checklist remains useful for an order book, AMM, auction, request for quotes, or solver system. Those designs should not be treated as interchangeable.