Glossary
Institutional Digital Asset Glossary
Precise definitions of institutional digital asset trading terms: RFQ, CLOB, block trades, MPC custody, stablecoin settlement, FIX connectivity, and market making.
A
- Agency Execution
- Agency execution is a trading model in which the provider executes an order on the client's behalf, routing it to venues or working it with an algorithm, passing through the prices achieved and charging a commission, while the client bears the market risk during execution. It contrasts with principal execution, where the provider is the counterparty.
B
- Basis Points
- A basis point (bp) is one hundredth of one percent, or 0.01%. Trading desks express spreads, fees, slippage, and market impact in basis points of notional so that costs are comparable across assets, sizes, and price levels; 25 basis points on a $10,000,000 trade is $25,000.
- Bid-Ask Spread
- The bid-ask spread is the difference between the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask or offer) for an asset at a given moment. It is the visible cost of immediacy and the primary revenue of a market maker, usually expressed in basis points of the mid-price.
- Block Trade
- A block trade is a single transaction that is large relative to the liquidity visible on public order books, executed bilaterally with a liquidity provider at one agreed price rather than worked through the market. In digital assets, blocks are usually executed through an OTC desk's request-for-quote workflow.
C
- Central Limit Order Book (CLOB)
- A central limit order book (CLOB) is a venue mechanism that collects resting buy and sell orders from all participants, displays them by price level, and matches incoming orders against them by price and then time priority. Most centralized digital asset exchanges run a CLOB, and market makers supply most of its displayed depth.
- Co-Location
- Co-location is the placement of a trading firm's servers in the same data center as the matching engines and connectivity hubs of the venues and counterparties it trades with, reducing network round-trip time to the physical minimum. In digital assets, Equinix NY4 in New York and LD4 in London are common co-location sites.
- Cold Storage
- Cold storage is the custody of digital assets with private keys or key shares that are never exposed to an internet-connected system, so that signing requires a deliberate, controlled process to bring the key material into use. It protects against remote compromise at the cost of slower access.
- Counterparty Risk
- Counterparty risk is the risk that the other party to a trade or a custody arrangement fails to meet its obligations, whether through insolvency, operational failure, or fraud. In digital asset markets it covers exposure to exchanges, OTC desks, custodians, and settlement providers, managed through due diligence, exposure limits, and settlement design.
D
- Dark Pool
- A dark pool is a trading venue that matches orders without displaying them to participants before execution, so that institutions can trade blocks without revealing size or intent to the wider market. Digital asset dark pools bring the model from equities to crypto, matching participants with each other rather than against a single dealer.
- Delivery Versus Payment (DvP)
- Delivery versus payment (DvP) is a settlement arrangement in which the transfer of an asset happens only if the corresponding payment happens, and vice versa, so that neither party is exposed to the loss of principal if the other fails to deliver. In digital assets it is implemented through escrow, atomic on-chain transfers, or a settlement agent.
- Digital Asset Business Act (DABA)
- The Digital Asset Business Act 2018 (DABA) is Bermuda's statute for licensing and supervising businesses that conduct digital asset activities, including issuance, exchange, custody, and market making, under the Bermuda Monetary Authority. It sets out license classes with different scope and conditions, including the Class M license.
F
- FIX Protocol
- The Financial Information eXchange (FIX) protocol is an open messaging standard, maintained by the FIX Trading Community, for communicating orders, executions, quotes, and post-trade information between trading systems. Digital asset liquidity providers offer FIX so that existing order management systems connect without custom integration.
H
- Hot Wallet
- A hot wallet is a wallet whose private keys are held on internet-connected systems so that it can sign transactions automatically and immediately. It offers the highest availability and the highest exposure to remote compromise, so institutions keep hot wallet balances small and tightly monitored.
L
- Latency
- Latency is the time between an action and its effect in a trading system, for example between sending an order and receiving the execution report, or between a price change on a venue and a market maker's updated quote. It is measured in microseconds to milliseconds and is reduced by co-location, efficient protocols, and fast internal systems.
- Liquidity Provider
- A liquidity provider is a firm that stands ready to buy or sell digital assets to counterparties on demand, whether by quoting on venues as a market maker, streaming executable prices to clients over an API, or pricing blocks through an OTC desk. The term covers the full set of services that supply immediacy to institutions.
M
- Market Impact
- Market impact is the change in an asset's price caused by the act of trading it, arising both from the liquidity an order consumes and from other participants adjusting their prices once they infer that a large order is being worked. Together with slippage, it is the true cost of moving size.
- Market Maker
- A market maker is a firm that continuously quotes both a bid and an offer on a trading venue, providing liquidity to participants who want immediacy and earning the spread between the prices it buys and sells at while managing the inventory risk that results. On centralized digital asset exchanges, market making is algorithmic.
- Money Services Business (MSB)
- A money services business (MSB) is a category of non-bank financial business, defined under U.S. Bank Secrecy Act regulations and under Canada's proceeds of crime legislation, that must register with FinCEN or FINTRAC respectively and maintain anti-money-laundering programs. Businesses that exchange or transmit convertible virtual currency fall within it.
- Multi-Party Computation (MPC)
- Multi-party computation (MPC) is a cryptographic technique in which a private key is generated and held as separate shares by multiple parties or devices, and a transaction is signed jointly without any party ever assembling the full key. In digital asset custody it removes the single point of failure that a complete private key represents.
- Multisig
- A multisig wallet is an on-chain arrangement in which a transaction is valid only when signed by a required number of independent private keys out of a defined set, such as two of three. The rule is enforced by the blockchain's script or smart contract, so every participating key remains a complete key held by its owner.
N
- Net Settlement
- Net settlement is the practice of combining multiple trades between two parties over a period into a single net obligation per asset, so that only the difference moves rather than the gross value of every trade. It reduces the value at risk during settlement, the number of transfers, and the associated fees.
O
- On/Off-Ramp
- On/off-ramping is the conversion between fiat currency and digital assets, most often stablecoins, through a provider that accepts fiat by bank transfer and delivers the digital asset, or receives the digital asset and pays out fiat. For payment networks and treasuries it is the bridge between banking rails and blockchain settlement.
- Order Management System (OMS)
- An order management system (OMS) is the software through which an institution creates, approves, routes, and records orders, applying compliance and risk checks before an order leaves and capturing executions and allocations afterward. Digital asset liquidity providers that support FIX connect to an OMS the same way traditional brokers do.
- OTC Desk
- An OTC desk is a trading service that executes digital asset trades bilaterally with institutional clients, quoting a firm price for the full size through a request-for-quote workflow over private channels and settling on pre-agreed terms. It absorbs the market impact of blocks that would move a public order book.
P
- Pre-Funding
- Pre-funding is the requirement to deposit assets or cash with a venue or counterparty before a trade can execute, so that settlement happens inside the counterparty's books rather than between independent accounts afterward. It is standard on centralized exchanges and is a primary source of counterparty exposure for institutions.
- Principal Execution
- Principal execution is a trading model in which the liquidity provider is the client's counterparty, buying from or selling to the client from its own inventory at a quoted price and then managing the resulting position as its own risk. OTC desks and market makers execute as principal; the client's cost is the spread on the quote.
- Private Key
- A private key is the secret number that authorizes transactions from a blockchain address by producing a digital signature that the network verifies against the address's public key. Whoever can use the private key controls the assets at that address, which makes key management the foundation of digital asset custody.
R
- Request for Quote (RFQ)
- A request for quote (RFQ) is a trading workflow in which a client asks one or more liquidity providers for a firm price on a specified asset, side, and size, then chooses whether to trade at the quoted price within a short validity window. RFQ is the standard way institutions execute digital asset block trades bilaterally.
- REST API
- A REST API is a request-response interface over HTTP in which a client calls defined endpoints to read or change resources such as balances, orders, quotes, and settlement instructions. In digital asset trading it handles account operations, request-for-quote calls, reporting, and integrations that do not need a persistent session.
S
- Settlement Risk
- Settlement risk is the risk that one party to a trade delivers its side, the asset or the cash, and the other party fails to deliver, leaving the first party exposed for the full value of what it sent. It arises whenever the two legs of a trade do not move at the same time or under the same control.
- Slippage
- Slippage is the difference between the price expected when an order is placed and the average price actually realized, typically caused by an order consuming multiple price levels on an order book or by the market moving during execution. It is the largest hidden cost of executing size on a venue.
- Stablecoin
- A stablecoin is a digital asset designed to hold a stable value relative to a reference currency, most commonly the U.S. dollar, typically by backing each unit with reserves of cash and short-term government securities held by the issuer and redeemable at par. Institutions use fiat-backed stablecoins as a 24/7 settlement currency.
- Streaming Liquidity
- Streaming liquidity is the continuous delivery of executable two-way prices at defined sizes from a liquidity provider to a client over an API, typically WebSocket or FIX, so that the client can trade at any moment without requesting a quote first. It is the electronic counterpart to the OTC desk's request-for-quote workflow.
T
- TWAP
- TWAP, or time-weighted average price, is both a benchmark (the average price of an asset over a period, weighted equally by time) and an execution algorithm that splits an order into equal slices executed at regular intervals so that the realized price tracks that benchmark. It suits orders that can be worked over a defined window without urgency.
V
- VWAP
- VWAP, or volume-weighted average price, is the average price of an asset over a period weighted by the volume traded at each price, used as a benchmark for execution quality and as an algorithm that paces an order in proportion to expected market volume so that its fills track the benchmark.
W
- Warm Wallet
- A warm wallet is a custody tier in which key material is protected by controls such as multi-party computation and policy approval but can sign transactions within minutes, so that an institution can settle trades and payments during the day without exposing its long-term holdings. It sits between hot wallets and cold storage.
- WebSocket API
- A WebSocket API is a persistent, bidirectional connection over which a server pushes updates to a client as they occur, without the client polling. Digital asset liquidity providers and venues use WebSocket to stream executable prices, order book changes, and trade and order status in real time.