Short position Now this is a term you've probably heard when hanging out with friends who've dabbled with trading! A short position (or short) means selling an asset with the intention of rebuying it later at a lower price. Shorting is closely related to margin trading, as it may happen with borrowed assets. However, it's also widely used in the derivatives market and can be done with a simple spot position. How does it work, you ask? Let's see, shall we? When it comes to shorting on the spot markets, it's quite simple. Let's say you already have Bitcoin and you expect the price to go down. You sell your BTC for USD, as you plan to rebuy it later at a lower price. In this case, you're essentially entering a short position on Bitcoin since you're selling high to rebuy lower. Easy enough. But what about shorting with borrowed funds?

This is a bit more complicated. You borrow an asset that you think will decrease in value. You immediately sell it. If the trade goes your way and the asset price decreases, you buy back the same amount of the asset that you've borrowed. You repay the assets that you've borrowed (along with interest) and profit from the difference between the price you initially sold and the price you rebought. Still a bit confused? Let's see a practical example. We put up the required collateral to borrow 1 BTC, then immediately sell it for $10,000. Now we've got $10,000. Let's say the price goes down to $8,000. We buy 1 BTC and repay our debt of 1 BTC along with interest. Since we initially sold Bitcoin for $10,000 and now rebought at $8,000, our profit is $2,000 34 (minus the interest payment and trading fees). Boom, that's how you profit from the price going down!

Order book If you go to an exchange like Binance, you'll see a lot of numbers flashing on the screen in what seems like an intriguing digital dance. Those are other traders' orders. The order book is a collection of the currently open orders for an asset, organized by price. When you post an order that isn't filled immediately, it gets added to the order book. It will sit there until it gets filled by another order or canceled. Order books will differ with each platform, but generally, they'll contain roughly the same information. You'll see the number of orders at specific price levels. When it comes to crypto exchanges and online trading, orders in the order book are matched by a system called the matching engine. This system is what ensures that trades are executed you could think of it as the brain of the exchange. This system, along with the order book, is core to the concept of electronic exchange.

Order book depth The order book depth (or market depth) is a visualization of the currently open orders in the order book. It usually puts buy orders on one side, and sell orders on the other and displays them cumulatively on a chart. In more general terms, the depth of the order book may also refer to the amount of liquidity that the order book can absorb. The "deeper" the market is, the more liquidity there is in the order book. In other words, a market with more liquidity can absorb larger orders without a considerable 35 effect on the price. However, if the market is illiquid, large orders may have a significant impact on the price.