Editor’s note: We have released a follow up article highlighting the other side of this story: The losses that the Market Seller experienced due to the low volume on VALR at the time of trading. You can read it here.
When it comes to trading, the clever ones have all kinds of tricks up their sleeves. Combining these tricks with mind-numbing patience can yield truly breathtaking results. While the impatient, on the other hand, will sacrifice profits for quick results.
Both sides of this trading coin were revealed in the late hours of Thursday night on popular South African crypto exchange VALR.
SA Crypto was alerted to a sell order of Bitcoin at 23h33, Thursday night 2 January, that ate through the entire VALR buy book, which wasn’t sufficient for the size of the sale. This resulted in tragic “slippage”, with all buy orders on the VALR orderbook being filled right the way through to R500! (If you’re lost, we break this down later in the article).
Cornel Groenewald, an active crypto trader from South Africa based in Iraq, was trading at the time when he saw the trades being executed. Being the middle of the night, Cornel tells SA Crypto that he wasn’t in the frame of mind to be taking screenshots, and no-one else on the SA Crypto Whatsapp group was available to talk about the incredible sight he was seeing.
“I was just waking up and was busy having a coffee,” says Groenewald. “The sell order was just over 10BTC if my quick Math serves me correctly. There were orders almost every R10k down from R90,000 all the way to R501. I nearly threw my laptop out the window!”
We reached out to VALR CEO Farzam Ehsani, who responded with a statement explaining that the sale was a high volume market order via API.
“There were some high volume traders who placed market orders via the API resulting in the momentary price drop,” explained Ehsani. “While we provide protective warnings for simple Buy/Sell traders in situations like this, for our advanced traders we execute API market order calls as they’re received.”
SO WHAT EXACTLY HAPPENED?
For those unfamiliar with exchange lingo, let’s break down exactly what and how this happened.
From the home page, users can access “advanced trading” by clicking “Exchange Buy/Sell”.
On the exchange page, users see the below screen. What this clever/lucky trader would have done is placed a “limit buy order”, as per below. According to our records, the trade at 23h33 on Thursday night was for 1.47BTC, at the price of R501 per Bitcoin. (For the record, the price of Bitcoin at the time of writing was R111,980 – so this trader placed his trade for a price R111,479 cheaper than the market price).
That “limit buy order” will go into the “buy” section of the “order book”. That’s the middle column below. The middle window of the “advanced exchange” shows you all the orders in the order book. The left column, with numbers red or green, is the price that traders have set the orders for. The middle column is the amount of Bitcoin requested to be bought (or for sale if it is in the above “sell book”) in that specific order, with the right column being the total Rand value of the specific order.
Then, what would have happened on Thursday night, as per Ehsani’s statement, was that a high volume trader was using a trading bot or some form of trading software (IE. they weren’t using the actual VALR website or app, they were using their own software plugged into the VALR exchange via API). This is how the trader would have been able to place the sell order without getting a warning.
This high volume trader placed a “market order”, not a “limit order” like the above buyer (see below arrow on the far left). This means the trader either wanted to offload their Bitcoin very, very quickly, or made the sale in error.
A market order will execute a trade at the latest market price. So, in this case, the trader was selling Bitcoin. So their market order would have sold Bitcoin at the highest “buy order” in the “buy book” (the green figures below).
Let’s use the current (time of writing) order book to provide an example…
The lowest buy order that we can see on the VALR exchange is someone looking to buy 0.01499995 Bitcoin at the price of R100,001. (There could be lower buy orders, but this is the most of amount of orders that VALR shows its users).
If that trade were to be executed now, at time of writing, a high volume trader (like the one from Thursday night) would have to come along and “market sell” at least 35 Bitcoin to get to the very bottom of the order book.
We reach this figure because as you can see above, the amount of buy orders from the highest price to that low price of R100,001 totals 34.1757 BTC. Therefore, a high volume trader would have to sell 35 BTC using their trading software at “market price” (not using a “limit order”) and their software would execute sales right the way through the order book until their 35 Bitcoin was sold.
And this is how the lucky/clever trader would have ended up with 1.47 BTC for R736 on Thursday night. A high volume trader using software would have sold a lot more Bitcoin than the buy book had on offer, eating up the buy book all the way down to R501 per Bitcoin.
According to trader Groenewald, the sell order by the high volume trader was for at least 10 BTC, indicating that there is a lot less trading happening on South African exchanges in the middle of the night.
This is just simple market dynamics. There is only a limited amount of Bitcoin at market price on any exchange at any given time, with a limited amount of traders willing to buy that Bitcoin. Some exchanges have more orders than others based on their popularity. IE. that lucky trader would probably not have had their buy order filled on an exchange with the extremely high volume of Luno.
Both sides of this specific trade could have been done in error. The high volume trader could have either accidentally hit “market sell” on their software, not realising the implications. Or, alternatively, they just wanted to offload their 10 Bitcoin as fast as possible.
The buy order of R501 on the other hand could have just been a clever move, but, it also could have been an erroneous punch of the keyboard. Whatever it was, it was most fortunate indeed. If that lucky trader fortuitously comes across this article, we’d love it if you could reach out to us here at SA Crypto. In relation: If the trader who market sold that +- 11 BTC via API could also reach out to us, we’d love to hear from you, and perhaps find out how it happened, and how you are feeling. You can reach us on firstname.lastname@example.org
Until then though, the rest of us crypto enthusiasts can only dream of buying Bitcoin at R501 per coin in 2020. Stay safe out there.