Understanding AMM
If you’ve traded stocks in any exchange, you should be familiar with the list of prices of a stock that traders are willing to sell and another list of prices of a stock that traders are willing to buy. To give an example, let’s consider the XYZ stock. Four people want to sell the XYZ stock at different prices. Then, three people want to buy the XYZ stock at different prices as well. Let’s make a list of the prices:
- Trader A wants to sell 10 XYZ stocks at $11
- Trader B wants to sell 12 XYZ stocks at $12
- Trader C wants to sell 11 XYZ stocks at $13
- Trader D wants to sell 18 XYZ stocks at $14
- Trader E wants to buy 15 XYZ stocks at $9
- Trader F wants to buy 13 XYZ stocks at $8
- Trader G wants to buy 18 XYZ stocks at $4
A potential buyer can buy XYZ stocks right now if they’re willing to spend $11 at that time. There is no other lower price. Also, they can only buy 10 XYZ stocks. If they want to buy 15 XYZ...
