🔄 Trading Mechanics: Order Books vs AMMs
Understand how CEX order matching differs from DEX liquidity pools
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0 / 5 completed📊 How Trading Works on Each Exchange
CEXs and DEXs use fundamentally different mechanisms to facilitate trades. Understanding these differences is key to choosing the right platform.
🎮 Interactive: Trading System Explorer
Compare how order books and AMMs execute trades:
📊
Order Book (CEX)
Traditional market with buy and sell orders matched centrally
How It Works
Buyers and sellers place limit/market orders. Exchange matches orders at best price.
Example
Binance Order Book
Trade Execution Steps
1
Place Order
User submits buy/sell order with price and quantity
2
Order Queue
Order added to order book (bids/asks sorted by price)
3
Matching Engine
Centralized engine matches orders at best prices
4
Settlement
Balances updated instantly in exchange database
Liquidity Source
Professional market makers provide liquidity for tight spreads
✓ Advantages
- • Deep liquidity
- • Fast execution
- • Limit orders
- • Stop losses
- • Low slippage
✗ Disadvantages
- • Centralized control
- • Custody risk
- • Can be manipulated
🎮 Interactive: Price Impact Comparison
See how the same trade executes differently on each system:
$100$5,000
📊
Order Book (CEX)
Base Price:$2000
Slippage:0.00%
Final Price:$2000.00
Execution Time:~50ms
Order Book Depth
Deep liquidity from market makers → minimal slippage even for large orders
🤖
AMM (DEX)
Pool Price:$2000
Price Impact:-0.00%
Final Price:$1999.99
Execution Time:~15-120s
Formula: x × y = k
Larger trades deplete pool reserves → higher price impact
Key Insight: For small trades, both systems perform similarly. DEX simplicity might be preferable.
Real-World Examples
🟣
Binance (CEX)
Model: Centralized order book
Speed: ~50ms execution
Volume: $30B+ daily
Pairs: 600+ trading pairs
Professional market makers provide liquidity. Users deposit funds to exchange wallets.
🦄
Uniswap (DEX)
Model: Automated Market Maker (AMM)
Speed: ~15-120s (Ethereum blocks)
Volume: $1-2B daily
Pairs: Unlimited (any ERC-20)
Anyone can create pools and provide liquidity. Users trade directly from their wallets.
💡
When to Use Each
Use Order Book (CEX) for:
- • Large trades requiring deep liquidity
- • Active trading with limit orders and stop losses
- • Day trading requiring instant execution
- • Fiat on-ramps (buying crypto with USD)
Use AMM (DEX) for:
- • Small-to-medium trades with acceptable price impact
- • Trading new tokens not yet on CEXs
- • Maintaining self-custody and privacy
- • Providing liquidity to earn fees