Are you looking at the Markets overview? Then you will see how much it costs to buy one coin. Are you looking at your Vault? Then you can see how much you will receive by selling one coin. These values can differ. How does that work?
If you want to sell a coin, then we will go to the exchange with your request and look for a buyer. We will find that buyer via the order book. Here, a buyer indicates how much they wants to pay for your coins. This all happens automatically and digitally.
The difference between buyers and sellers
The difference between the prices in Markets and the Vault has to do with supply and demand:
- The value in your Vault is based on the highest price a buyer is willing to pay for your coins.
- The value in Markets works the other way around. This is the lowest selling price someone is willing to sell a coin for.
The difference between the highest bid price (buyer) and the lowest ask price (seller) is called spread. And this spread is one of the reasons why the price between Markets and your Vault differs.
Number of coins in the order book
In addition to the spread, you also have to deal with the quantity of coins which are requested or offered at a certain price. This is often referred to as the depth of an order book.
Are there few coins offered or demanded? Then we speak of a shallow order book or an illiquid market.
For example, suppose you would like to sell 100 dogecoins in a shallow market. You can sell the first 50 DOGE to a buyer willing to pay a high price. The other 50 DOGE will go to buyers who will pay a lower price.
The reverse is also true. Suppose you want to buy 10 polkadot in a shallow market. The first 5 DOT will have a lower price. The last 5 DOT have a higher price.
In smaller transactions, the effect of the spread is negligible. But do you want to buy or sell a large amount at once? Then it is smart to take into account how the order book works!
The values in Markets and Vault are always based on the price of one coin.