Trade Types in DeFi
Understand the various trade types available in DeFi ecosystems, from spot trading to limit orders and concentrated liquidity.
Common Trade Types in DeFi
DeFi platforms offer a variety of trade types that cater to different trading strategies and goals. Understanding these options is essential for making informed decisions in the Solana ecosystem.
Spot Trading
Spot trading is the most straightforward type of trade in DeFi. It involves the immediate exchange of one token for another at the current market price.
How Spot Trading Works in DeFi
- You connect your wallet to a DEX (like Raydium or Orca on Solana)
- You select the token pair you want to trade (e.g., SOL/USDC)
- You specify the amount of the input token
- The DEX shows you the estimated amount of output tokens based on current liquidity pool rates
- You confirm the transaction and pay a small network fee
- The trade executes immediately, swapping your tokens at the current rate
Unlike centralized exchanges that use order books, DEXs typically use automated market makers (AMMs) and liquidity pools to execute spot trades.
Limit (Trigger) Orders
Limit orders allow you to specify the exact price at which you want to buy or sell a token. The order will only execute if the market price reaches your specified price.
How Limit Orders Work in DeFi
On Solana, platforms like Jupiter offer limit order functionality:
- You specify the token pair and the amount you want to trade
- You set your desired price (different from the current market price)
- Your order is stored on-chain but doesn't execute immediately
- When the market reaches your specified price, the order executes automatically
- If the market never reaches your price, the order remains unfilled until you cancel it
Note: Jupiter's limit orders are one of the key data sources that CLOBr analyzes to identify support and resistance levels.
Recurring/DCA (Dollar-Cost Averaging) Orders
DCA Orders enable automatic, periodic purchases of a specific token over time. This strategy helps reduce the impact of volatility by spreading purchases over time and usually across multiple price points.
How DCA Orders Work in DeFi
On Jupiter's DCA feature:
- You specify the total amount you want to invest
- You choose how many portions to split it into (e.g., 10 equal portions)
- You set the time interval between purchases (e.g., minutes, hourly, daily, weekly, etc.)
- You optionally set a minimum and maximum price range for the order to occur. If the market price is outside this range, the order is not fulfilled.
- The platform automatically executes trades according to your schedule
- Each trade occurs at the market price at the time of execution
CLOBr accounts for DCA orders by summing their scheduled orders over the next 24 hours to accurately represent their impact on market liquidity.
Concentrated Liquidity Positions
Concentrated liquidity positions are not traditional trades but represent a new way of providing liquidity within specific price ranges. This approach allows liquidity providers to focus their capital where it's most effective - where it can generate the highest fees or where they can swap one token for another (with some other tradeoffs).
How Concentrated Liquidity Works
On platforms like Meteora and Raydium:
- You deposit one or both tokens in a pair into a liquidity pool
- You specify a price range where your liquidity will be active
- Your capital is concentrated within that range, providing deeper liquidity
- You earn fees when trades occur within your specified range, taking the other side of traders swapping in the pool
- Your liquidity becomes inactive and earns no fees if the price moves outside your range
These positions can create liquidity "walls" at specific price points that CLOBr identifies as potential support and resistance levels.
Perpetual Futures
Perpetual futures (perps) are derivative contracts that allow traders to speculate on price movements with leverage, without an expiration date.
How Perpetuals Work in DeFi
On Solana platforms like Drift, Mango Markets, or ox.fun:
- You deposit collateral (e.g., USDC)
- You can take long positions (betting price will rise) or short positions (betting price will fall)
- You can use leverage to amplify potential gains (and risks)
- You pay funding rates to maintain positions (positive or negative, depending on market conditions)
- Positions can be kept open indefinitely until you close them or get liquidated
Note: While CLOBr doesn't directly aggregate perpetual futures data, the liquidity insights it provides can be valuable for perp traders when considering entry and exit points.
Comparison of Trade Types
| Trade Type | Best For | Risk Level | CLOBr Relevance |
|---|---|---|---|
| Spot Trading | Immediate execution, simple trades | Low to Medium | Medium (impacts immediate liquidity, price) |
| Limit Orders | Targeted entry/exit prices | Low to Medium | Very High (creates support/resistance levels) |
| DCA Orders | Long-term accumulation | Low | Medium (distributed impact over time) |
| Concentrated Liquidity | Liquidity providers, yield farming | Medium to High | Very High (creates major liquidity walls) |
| Perpetual Futures | Leverage, shorting, hedging | High | Indirect (use CLOBr to identify entry/exit) |
Trade Types and CLOBr
CLOBr aggregates data from multiple trade types—particularly limit orders and concentrated liquidity positions—to provide a comprehensive view of market structure. This helps you:
- Identify significant support and resistance levels created by limit orders
- Visualize concentrated liquidity that might not be apparent from price action alone
- Understand how DCA orders contribute to gradual market movements
- Make more informed decisions about which trade type to use based on current market conditions
In the next section, we'll explore liquidity pools in more detail, and how they form the foundation for many of these trade types in DeFi.