It’s been a long time coming, but the implementation of a fully-fledged order book system on the Football Index looks close to completion.
If you’ve been paying attention to the state of the market recently, you will have noticed that the prices of many premium players have fallen quite sharply over the last couple of weeks.
Here’s a few notable ones:
- Jadon Sancho – with a supposed move to Manchester United falling through, the Borussia Dortmund winger’s price fell to the £9 per share mark from a high of about £15 per share at the height of his transfer speculation
- Bruno Fernandes – his price dropped from around £10 per share to the mid £6 per share mark
There were several other high-profile players like Mbappe, Neymar, Pogba, Rashford and Harry Kane that experienced similar drops in price.
These events sparked mass hysteria throughout the Football Index community on Twitter as people panicked at the mass sell offs that were being witnessed.
So, here’s what happened in a nutshell…
The implementation of order books meant that the Football Index relinquished control over player prices, as the market forces of demand and supply dictated by the traders themselves are what set the prices now.
In their initial order book announcement, the Football Index indicated that the “Buy Now” price would be calculated using the average price of the lowest 300 shares available through “Offers”.
This change sent the majority of player prices across the platform into free fall, and with the added lack of market depth visibility, traders were unable to see the information on the nature of the offers being placed on players.
This certainly makes it a good time to write an article that helps traders get to grips with what order books are all about.
With a better grasp of the new trading mechanics, we will be in a better position to make good decisions when it comes to purchasing and selling players.
So, let’s get started with the basics…
How Do Order Books Work?
Wikipedia gives a simple enough definition of what order books are:
An order book is the list of orders that a trading venue uses to record the interest of buyers and sellers in a particular financial instrument. A matching engine uses the book to determine which orders can be fully or partially executed.
In Football Index terms, order books give traders the ability to place buy orders and sell orders on footballers available on the platform.
Football Index Guide has also uploaded a very informative video that explains order books quite well…
In the past, player prices were determined by demand using a delta mechanism that only the Football Index were specifically privy to. It was suggested that it would take 900 shares purchased in a player to move the price up by 1 penny, and vice versa.
Traders could only buy players via the market buy price available at the time.
Whilst on the sell side, you either had to instant sell at a price lower than the market buy price or list the shares on a sell queue and wait, which would guarantee sales at the market buy price.
Now the game has changed.
There are two ways to buy shares:
- Buy Now
- Place Bids
… as well as two ways to sell them:
- Instant Sell
- Place Offers
These new options provide traders with greater control to set the market prices as they no longer have to settle for the Buy Now price on offer or the Instant Sell price available.
Essentially, traders can create their own buy price through placing a bid, as well as set their own sell price via the placement of an offer.
I’m now going to talk about each of these new options in turn…
What Is a Bid?
A bid is the function that allows you to set your own buy price for the player(s) that you wish to purchase.
For example, Son Heung Min’s Buy Now price is currently £2.05 per share, but by placing a bid, we can acquire him for as low as £1.54 per share if the bid was to be matched.
To place a bid, you simply click the player’s blue Buy button, after which you then select the “Place Bid” option located on the bottom right hand side of the dialog box.
Once you’re happy with the bid price that you’ve set, you have the option to select the amount of shares that you wish to acquire at the bid price. You are allowed up to a maximum of 300 shares per bid.
How long do bids last?
After you have placed your bid, your transaction will then appear in your Open Bids/Offers section, as the bid is yet to be matched.
A bid will remain in the pending status for as long as it is not matched by a seller.
So, for example, if I placed a bid of £1.70 for 100 Son Heung Min shares, they would remain as pending until another trader who is happy with instant selling for £1.70 decides to do exactly that.
The Bid Zone
This is simply the price range in which you can bid for shares in footballers on the Football Index.
You can see this below:
Bids can not be placed outside of this zone.
What Is a Sell Order?
A sell order (or what is known as an offer), is the function that allows a trader to sell their shares for a price that they set.
For example, I currently have 43 Lewandowski shares in my portfolio. His instant sell price is £2.61, but if I wanted to set my own preferred sell price, I would simply place an offer instead.
I would head over to my portfolio and select the red Sell button next to Lewandowski’s name. This would then bring up a dialog box that looks like this:
Next, I would choose the “Place an Offer” button…
… Which would then give me the freedom to set my own offer price and once completed, the transaction would be displayed in my pending Bids/Offers tab until another trader chose to buy the shares off of me for the price that I had specifically set.
The Offer Zone
This is the exact opposite of the bid zone that was mentioned earlier. It is the price range in which traders can place offers for shares that they wish to sell.
At the moment, the upper limit of the Offer Zone is 50p above the Buy Now price, with the lower limit set at 1 penny below the Buy Now Price.
Offers can not be placed outside of this zone.
Removal of the Sell Queue
Order books have brought with them a raft of changes.
Another one of these is the fact that the sell queue will no longer be a part of the platform from the 1st of October.
This is because the functionality that the Offers mechanism provides makes the sell queue redundant.
It’s another necessary step that the Football Index needs to take towards full NASDAQ integration.
This brings me onto my next point…
At the moment, one of the biggest reasons why prices on the platform are so volatile is as a result of the lack of market bid depth.
A tool that shows the depth of the market for each footballer on the platform would give traders a complete view of the existing demand and supply.
Here’s a quote on this matter from the Football Index themselves:
“Traders will be able to see the exact number of Shares that need to be bought to move the Buy Now price up to the next price level. Similarly, Traders will be able to see the exact number of Shares that need to be sold to move the Instant Sell price down to the next price level. This will add significant transparency and efficiency when making trading decisions.”Football Index
It would look like this:
But don’t fret!
Market depth integration has been on the Football Index pipeline for a long while, and more information regarding this element will be made available later in the year.
The Benefits of Order Books
Now that the concepts behind order books make sense to you, I’m going to list a few of the advantages that this new system of trading will provide.
Entices further large-scale investment
The introduction of an order book system for the Football Index puts them on the table alongside other stock markets operating in the world.
Investors would be more confident in backing a product that looks like and behaves in a way that is similar to any other financial market.
Enables easier prediction of future price movements
Order books allow traders to know whether the buyers or sellers are in control of the market. For instance, a greater amount of buy orders visible for a particular player suggests that the player’s price is likely to increase amidst the buying pressure.
This is very useful information for traders who can use this insight to predict the direction that a player’s price is headed and therefore adjust their trading strategy so as to maximise their likelihood of profiting from the outcome.
Greater control of prices
This point was discussed earlier but it’s worth raising once more.
The order book system allows traders to set their own specific buy and sell prices, which is a significant development from users relying on the now defunct sell queue functionality which could sometimes take weeks or months for players to sell at market rate, as well as instant selling at huge spreads.
Football Index order books are a massive step forward towards a more mature market that will entice a wave of prospective investors.
Despite the massive price corrections that we’ve witnessed in the past few weeks, the dividends on offer have increased significantly!
You often hear people parroting the phrase “buy the dips”.
Now is the perfect time to get involved and hopefully reap the rewards a few months down the line.
If all this still sounds quite complicated, have a read of our Football Index explained article, which should get you up to speed with all the basics.