Clear DefinitionsOrder Cancellation
1 min read
Pronunciation
[awr-der kan-suh-ley-shuhn]
Analogy
Order cancellation is like calling a restaurant to cancel a food delivery order you placed earlier because you decided you're no longer hungry or want something else. As long as the food hasn't been made and sent out (the order hasn't been filled), you can usually cancel it.
Definition
The act of withdrawing or removing a previously placed buy or sell order from an exchange's order book before it has been executed (filled). Traders may cancel orders for various reasons, such as changed market conditions or an error in the original order.
Key Points Intro
Order cancellation allows traders to retract their unfilled orders from the market.
Key Points
Removes an active, unfilled order from the order book.
Can be done manually by the trader or automatically by a trading algorithm.
Reasons include changing market strategy, price movements, or risk management.
On blockchains, cancelling an on-chain order typically requires a separate transaction and gas fee.
Example
A trader placed a limit order to buy ETH at $3,000. However, news emerges that causes the market to turn bearish, and ETH's price starts to fall rapidly. The trader decides to cancel their $3,000 buy order to avoid purchasing ETH at what might soon be an unfavorable price.
Technical Deep Dive
On centralized exchanges, order cancellation is usually a quick API call or a click in the trading interface. The exchange's matching engine removes the specified order from its internal order book. For on-chain order books (e.g., some DEXs), cancelling an order involves submitting a transaction to the relevant smart contract. This transaction instructs the contract to mark the order as invalid or remove it, and this action incurs gas fees. The ability to cancel orders quickly is crucial for market makers and active traders.
Security Warning
In volatile markets or on congested networks (for on-chain orders), there might be a delay in processing an order cancellation. During this delay, the order could still be filled if the market moves to its price level. Be aware of potential front-running of cancellation transactions on some blockchains.
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