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What is a liquidity pool?

Liquidity providers (LPs) add funds to liquidity pools. You could think of a liquidity pool as a big pile of funds that traders can trade against. In return for providing liquidity to the protocol, LPs earn fees from the trades that happen in their pool. In the case of Uniswap, LPs deposit an equivalent value of two tokens – for example, 50% ETH and 50% DAI to the ETH/DAI pool.

It’s quite easy to add funds to a liquidity pool. The rewards are determined by the protocol. For example, Uniswap v2 charges traders 0.3% that goes directly to LPs. Other platforms or forks may charge less to attract more liquidity providers to their pool.

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What is an Automated Market Maker (AMM)? 

An automated market maker (AMM) is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets. Instead of using an order book like a traditional exchange, assets are priced according to a pricing algorithm.

This formula can vary with each protocol. For example, Uniswap uses x * y = k, where x is the amount of one token in the liquidity pool, and y is the amount of the other. In this formula, k is a fixed constant, meaning the pool’s total liquidity always has to remain the same. Other AMMs will use other formulas for the specific use cases they target. The similarity between all of them, however, is that they determine the prices algorithmically.

How does an automated market maker (AMM) work?

An AMM works similarly to an order book exchange in that there are trading pairs – for example, ETH/DAI. However, you don’t need to have a counterparty (another trader) on the other side to make a trade. Instead, you interact with a smart contract that “makes” the market for you.

On a decentralized exchange like Binance DEx or Uniswap, trades happen directly between user wallets. If you sell BNB for BUSD on Binance DEX, there’s someone else on the other side of the trade buying BNB with their BUSD. We can call this a peer-to-peer (P2P) transaction. 

In contrast, you could think of AMMs as peer-to-contract (P2C). There’s no need for counterparties in the traditional sense, as trades happen between users and contracts. Since there’s no order book, there are also no order types on an AMM. What price you get for an asset you want to buy or sell is determined by a formula instead. Although it’s worth noting that some future AMM designs may counteract this limitation.

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What is OCO order? 

An OCO, or “One Cancels the Other” order allows you to place two orders at the same time. It combines a limit order, with a stop-limit order, but only one of the two can be executed.

In other words, as soon as one of the orders get partially or fully filled, the remaining one will be canceled automatically. Note that manually canceling one of the orders will also cancel the other one.

The OCO feature is a simple but powerful tool, which allows you and other Binance users to trade in a more secure and versatile way. This special type of order can be useful for locking profits, limiting risks, and even for entering and exiting positions.

Important terms in OCO order. 

Limit order

Price: The price of your limit order. This order will be visible on the order book.

Stop-Limit

Stop: The price at which your stop-limit order will be triggered (e.g., $300).

Limit: The actual price of your limit order after the stop is triggered (e.g., $290).

Amount: The size of your order (e.g., 5 BNB).

Total: The total value of your order (total cost).

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Market order 

A market order is an order to immediately buy or sell at the best available price. It needs liquidity to be filled, meaning that it is executed based on the limit orders already placed on the order book. If you want to buy or sell instantly at the current market price, setting a market order is your best option. For example, the price of BTC might be rising rapidly, and you want to buy it ASAP. You're willing to take the market's price so long as you can purchase BTC instantly. In this case, you'd make a market order on your chosen exchange.

How a market order works

Unlike limit orders which are placed on the order book, market orders are executed instantly at the current market price. There are always two sides in a trade; the maker and the taker. When you place a market order, you are taking the price set by someone else. 

For example, an exchange will match a purchase market order to the lowest ask price on the order book. In contrast, a sell market order will be matched with the highest bid price on the order book.

When to use a market order?

As we’ve seen, market orders are handy when getting your order filled is more important than getting a specific price. This means you should only use market orders if you are willing to pay a higher cost caused by the slippage. In other words, market orders are helpful if you're in a rush.

Sometimes you might be in a situation where you had a stop-limit order that was passed over, and you need to buy/sell as soon as possible. So if you need to get into a trade right away or get yourself out of trouble, that's when market orders come in handy.

However, if you're not a complete beginner to crypto and want to purchase some altcoins with your Bitcoin, avoid using a market order because you might pay more than necessary. In this case, a limit order is probably better.

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Stop-limit order

As mentioned, a stop-limit order combines a stop trigger and a limit order.  The stop order adds a trigger price for the exchange to place your limit order. Let's see how it works.

How does a stop-limit order work?

The best way to understand a stop-limit order is to break it into parts. The stop price acts as a trigger to place a limit order. When the market reaches the stop price, it automatically creates a limit order with a custom price (limit price).

Although the stop and limit prices can be the same, this isn’t a requirement. In fact, it would be safer for you to set the stop price (trigger price) a bit higher than the limit price for sell orders. For buy orders, you can set the stop price a bit lower than the limit price. This increases the chances of your limit order filling after it triggers.

Buy stop-limit

Imagine that BNB is currently at $300 and you'd like to buy when it starts to enter a bullish trend. However, you don't want to pay too much for the BNB if it quickly begins to rise, so you need to limit the price you’ll pay.

Suppose that your technical analysis tells you an uptrend might start if the market breaks above $310. You decide to use a buy stop-limit order to open a position, in case the breakout happens. You set your stop price at $310 and your limit price at $315. As soon as BNB reaches $310, a limit order to buy BNB at $315 is placed. Your order might be filled with a price of 315 or lower. Note that $315 is your limit price, so if the market goes up too quickly above it, your order might not be filled completely.

Sell stop-limit

Imagine that you bought BNB at $285 and it’s now at $300. To prevent losses, you decide to use a stop-limit order to sell BNB if the price drops back to your entry. You set up a sell stop-limit order with a stop price of $289 and a limit price of $285 (the price you purchased BNB at). If the price reaches $289, a limit order to sell BNB at $285 will be placed. Your order might be filled with a price of 285 or higher.

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Limit order

When you set a limit order, you choose a maximum purchase price or minimum sale price. Your exchange will automatically attempt to fill the limit order when the market price meets or is better than your limit price. These orders are useful when you have a target entry or exit price and don’t mind waiting for the market to meet your conditions.

Typically, traders place sell limit orders above the current market price and buy limit orders below the current market price. If you place a limit order at the current market price, it will likely be executed in a few seconds (unless it’s a low-liquidity market).

For example, if the market price of Bitcoin is $32,000, you could set a buy limit order at $31,000 to purchase BTC as soon as the price hits $31,000 or lower. You might also place a sell limit order at $33,000, meaning that the exchange will sell your BTC if the price goes to $33,000 or higher.

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What is coin burn? 

Coin burning is the process of permanently removing cryptocurrencies from circulation, reducing the total supply. 

A cryptocurrency holder will call the burn function, stating that they want to burn a nominated amount of coins.

The smart contract will then verify that the person has the coins in their wallet and that the number of coins stated is valid. The burning mechanism only allows positive numbers.

If you execute the burn function to burn your coins, they will be destroyed forever. It's impossible to recover coins after they are burned, and thanks to blockchain technology, the proof of burn can be easily verified on a blockchain explorer.

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How To Trade With Hammer Candlestick Pattern:

Hammer candlestick patterns are one of the most used patterns in technical analysis. Not only in crypto but also in stocks, indices, bonds, and forex trading. Hammer candles can help price action traders spot potential reversals after bullish or bearish trends. Depending on the context and timeframe, these candle patterns may suggest a bullish reversal at the end of a downtrend or a bearish reversal after an uptrend. Combined with other technical indicators, hammer candles may give traders good entry points for long and short positions.

The bullish hammer candles include the hammer and inverted hammer, which appear after a downtrend. The bearish variations of hammer candles include the hanging man and the shooting star, which occur after an uptrend.

A bullish candlestick hammer is formed when the closing price is above the opening price, suggesting that buyers had control over the market before the end of that trading period.

Inverted hammer candlestick pattern

An inverted hammer is formed when the opening price is below the closing price. The long wick above the body suggests there was buying pressure trying to push the price higher, but it was eventually dragged back down before the candle closed. While not as bullish as the regular hammer candle, the inverted hammer is also a bullish reversal pattern that appears after a downtrend.

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