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Order Book

An order book is a digital ledger used in asset trading that records open orders, a buy or sell instruction from a trader for a specific asset or security. It functions as the backbone of most modern trading platforms and exchanges, enabling users to execute trades based on current market conditions.

How the Order Book works in Zeitgeist​

In Zeitgeist, the order book contains trading pairs of outcome assets and the market's base asset (collateral). The order book can be set as the market's scoring rule. The operations within the order book are primarily managed through three fundamental functions: place_order, remove_order, and fill_order.

Place Order​

This function is used to introduce a new order into the market. When traders decide to buy or sell an asset, they use place_order to specify the details of their order, the quantity they wish to buy the taker_asset for taker_amount and sell the maker_asset for maker_amount. This order is then added to the order book, where it waits to be matched by taker(s).

It is important to mention that the users of the Zeitgeist order book do specify the price of the assets implicitly. This means that the place_order does not take a price as an argument, but rather the taker_amount and maker_amount. This means the caller of the place_order function does willingly sell the maker_amount of the maker_asset to buy the given taker_amount of the taker_asset. After the execution of place_order the maker_amount of the maker_asset is reserved for the order. This means it is not available for the user to use in other transactions.

Fill Order​

The crux of any trading activity is the completion of trades, which is facilitated by the fill_order function. This function is triggered when a taker matches a given maker order. The fill_order function will execute the trade, transferring the specified asset between parties at the agreed price, and update the order book to reflect the completion of the trade.

The taker has the ability to partially fill the order for a given maker_partial_fill amount. This amount specifies the partial amount of what the maker wants to fill. The maker always wants to fill the taker_amount of the specified taker asset (in place_order). Thus, the maker_partial_fill (if a partial fill is wanted) should be smaller than the taker_amount of the maker order.

Remove Order​

Orders may need to be withdrawn from the order book for various reasons, such as a change in market strategy or a mistake in the order's details. The remove_order function allows traders or the system to cancel an existing order. This function ensures that the order book remains up-to-date with only active intents to trade, thereby preserving market liquidity and participant interest.