Orders

An exchange is a common place where buyers and sellers can trade products and commodities. Historically, buyers and sellers had to meet physically to strike a deal or depend on third party brokers, but with digital applications trading can be simplified. There is no longer a need for a physical place to conduct trades like the New York Stock Exchange because buyers and sellers can post buy and sell orders digitally on a shared marketplace. Sellers can state the expected price for their commodity, and buyers can accept it or bid in their expected price. This can be done in an asynchronous way without the need to meet face to face. 

These sell and buy offers are called orders and are collected in a digital order book. In this order book, the buy orders, called bids, and sell orders, called asks, are openly displayed with offered volumes and ordered by price. The bid price is the highest price a buyer is willing to pay for a commodity, while the ask price is the lowest price that a seller is willing to accept. A trade occurs when the seller and buyer agree on a price. This means that either a buyer matches the lowest ask price available in the order book by posting a bid with the same price (or higher) or a seller matches the lowest available bid price by posting an ask of the same price (or lower). A seller could e.g. offer 1 gram of gold for 50$, a potential buyer can then choose to put in a bid that is 50$ to be matched with the seller's ask and buy the gold. But the buyer could also put in a bid of 49$ and see if there is some other seller that will offer gold for that price or if the seller will even cancel the current ask of 50$ and go down to 49$ to match with the buyer and sell the gold.

The idea behind such an order book exchange is to create an open and transparent marketplace. A marketplace should enable efficient and discrimination-free trading between interested parties. Because of the open order book, all market participants have information about the offered prices, volumes, and liquidity of the commodity at all times. This is in stark contrast to over-the-counter (OTC) trading which relies on bilateral deals and intransparent broker-dealer networks to facilitate trades. 

Order book exchanges are an effective way to define the market price of some commodity, as there is constant price discovery happening by transparently matching supply and demand. The settlement price of the last trade that was created by buyers and sellers defines the market price of a commodity. Instead of bilateral trades that are mostly kept private and where the price discovery is a result of bargaining, an order book exchange is often a very good reflection of the actual demand and supply that exists on the market. The market price is a good indicator of the value a commodity has to all participants, as anyone could have bought the commodity for this price on the exchange. 

Next to the market price, there is other information available in the open order book. There is, for example, the spread. Bids are ordered from the highest to the lowest price and asks are ordered from lowest to highest price. The spread is the difference between the highest bid price and the lowest ask price. The spread has to be closed for a trade to happen. The spread is usually an indicator of the liquidity of the commodity. If there are a lot of trades, the spread is usually small because many people put in bids and asks that are close to the last settlement price.

Energy Web’s Origin Exchange is such a digital marketplace specifically designed to meet the needs for trading energy attribute certificates (EACs) and meeting the overall “proof of impact” needs of renewable energy buyers. This specialization makes the Origin Exchange different from regular exchanges in that it lets renewable energy buyers and sellers include more information into the buy and sell orders so they can better achieve and prove progress toward their specific, varying sustainability targets. Next to price and volume, it takes additional information from the underlying EACs that are offered for sale and includes it in the ask. It also lets buyers define requirements in regards to that additional EAC information and puts it into the bid. The results are bids and asks that look different to e.g. a commodity exchange and that are customized for EAC trading. Sellers can attach unique EAC information like device information and generation data to the ask, allowing sellers to present their product in great detail directly to interested buyers. They do not rely on third parties like brokers to market or transact their EACs. Automatically pulling the data from the underlying EAC makes the process very easy for the seller. Similarly, buyers can specify their needs by defining criteria in the bid. On the buyer’s side, instead of being limited by brokers and what they offer, buyers can specify exactly what they wish to buy and what characteristics they value in their renewables procurement and associated EAC. 

The Origin Exchange gives buyers greater control and eases to find what they want. The Origin Exchange offers some additional features that are very specific to EAC trading and provide value to market participants. As buyers buy EACs to ensure and prove their electricity consumption is covered by renewables, it can be expected that there will exist periodic and constant demands. The Origin Exchange addresses that by letting buyers define demands that will automatically trigger the creation of bids at defined times, enabling buyers with goals for 24/7 procurement to more easily achieve and prove this type of impact. The fact that every EAC is unique and that buyers might want to buy a very specific one inspired the direct buy feature. This allows buyers to select an ask and buy EACs directly without having to go through the process of creating a bid that exactly matches the selected ask. 

Contents

  1. Create Ask:https://energyweb.atlassian.net/wiki/spaces/OD/pages/1138458652

  2. Create Bid: https://energyweb.atlassian.net/wiki/spaces/OD/pages/1139441665

  3. Create Demand: https://energyweb.atlassian.net/wiki/spaces/OD/pages/1132920956

  4. Direct Buy:https://energyweb.atlassian.net/wiki/spaces/OD/pages/1138589716