Chapter 1 · Why markets exist
Why would someone sell you their BTC?
- Skills to practice
- Understand markets
- Read first
- Start here
- 3D simulation
- None
Market scene
At three on a Saturday morning, Lin cannot sleep. He opens a trading app and buys 0.01 BTC.
Less than a second after tapping, “Filled” appears. He puts down his phone: he wanted to buy, so he bought. Nothing unusual.
But where did that 0.01 BTC come from?
At the same moment, somebody must have been willing to sell it. Lin expects BTC to rise. Does the seller expect it to fall?
Lin has never met them and will never know who they are. But the seller at that moment could be any of these:
- A miner in Iceland who produces BTC but pays electricity and rent in dollars.
- Someone who bought plenty last month, now losing sleep after a rapid rise and wanting to sell a little.
- Someone who just saw news suggesting trouble and wants out immediately.
- A company indifferent to direction, continuously quoting small buys and sells, accepting either side to earn a little difference each trade.
Lin can buy in a second at three in the morning because someone is waiting to sell.
Your decision
You have 1 BTC and believe it will rise long term. Would you sell in these four situations?
Observe the result
Only one of these four reasons relates to expecting a fall.
There are more reasons to sell than you might imagine:
- Urgency: needing cash.
- Aversion to fluctuations: transferring some risk.
- Believing you know more.
- Providing immediate execution professionally: earning the difference.
Buyers vary too. Lin expects a rise; another has excess cash to exchange; another buys here while selling the same asset elsewhere.
Both sides think trading improves their situation, but their definitions of improvement differ. Your successful purchase does not mean the other person is foolish.
Without this meeting place, Lin would have to find someone awake at three, wanting to sell exactly 0.01 BTC then. He probably would not.
The mechanism
A market connects people with different needs, views, and timing. They exchange three things:
- Risk from price movements. One person avoids it, another accepts it for compensation. The risk-averse sells; the willing risk bearer buys.
- Immediate execution. Urgent traders pay a little. Waiting traders prepare opportunities to transact and receive compensation.
- Information. Each brings knowledge to trade. The execution price aggregates their views into a number.
- Different needs
- Rest buy and sell orders
- Buyers and sellers meet
- Trade executes
- A price forms
- New information
- New orders
This chain begins the next 35 chapters. Chapter 2 explains price movement through it, Chapter 13 opens resting orders, and Chapter 15 examines the continuously quoting company.
Before any order, ask: who might be opposite me, and why will they trade? If the answer is “they know more than I do,” pause and think.
What it is called
The side exchanging cash for assets. Reasons include bullish expectations or other uses, such as hedging another position.
The side exchanging assets for cash. Reasons include bearish expectations, cash needs, risk reduction, or providing execution.
Someone unwilling to bear price fluctuations transfers them to a willing bearer expecting compensation. One of markets' oldest functions, and a source of later Carry strategies.
How quickly and cheaply a trade can complete. Buying in a second at three in the morning indicates liquidity. People supply it through resting orders; it does not appear from nowhere. Chapter 14 studies it.
News, data, and judgments affecting future prices. Some always know more than others. Trading with better-informed people disadvantages you on average: information asymmetry.
Real markets
Miners produce BTC daily while paying most electricity, equipment, and premises bills in fiat. Collectively, they are persistent sellers regardless of market direction.
They sell to pay bills, not because they are bearish—a clear example of multiple reasons to sell.
Crypto markets run 24 hours, but participants do not. Resting orders are usually fewer at weekends and late at night.
The same order often costs more then, and large trades move prices more easily. Lin's 0.01 BTC is easy; 100 BTC is a different matter.
As COVID spread globally, stocks, oil, and gold fell almost together and institutions urgently needed cash. BTC lost nearly half its value over a little more than a day.
When nearly everybody sold for the same cash reason, willing buyers suddenly became scarce. Immediate execution vanished when most needed. Chapter 18 examines derivatives that day.
Hands-on
No registration or orders needed.
- Open a mainstream exchange's public BTC spot page and find recent trades.
- Pick 5 trades. Record times, prices, quantities, and whether buyers or sellers initiated them (usually color-coded).
- Describe likely counterparties and motives for each. Use all four categories: urgent cash, risk transfer, more information, and execution providers.
- Write: which category is most likely opposite my next buy? Does that make you more or less comfortable?
Change one variable
Change just one condition and reason again.
Nobody sells at today's price. Buyers increase bids until some price is high enough to attract a seller.
Trading nearly stops while price jumps. Markets need disagreement. Identical beliefs prevent exchange; prices jump directly to new levels.
Lin's three-in-the-morning purchase may wait a long time or cost far more.
Immediate execution is supplied at a price, not a natural market property. Chapter 13 opens the book to show that supply.
Information-driven trades disappear: nobody knows more. News moves prices immediately with almost no trading required.
Remaining trades serve cash needs, risk transfers, and execution. When a strategy claims to profit from news, ask why you should consistently know more than the other side.
Three depths
- FoundationWhy would someone sell you their BTC?Chapter 1
- AdvancedWhy are makers, arbitrageurs, trend followers, and hedgers present, and what traces do their trades leave?Advanced E · Execution and microstructure
- InstitutionalWhat kind of counterparty is an institution, and how does its presence change your return source?Institutional
Practice a habit: write “who might be opposite me?” before each order. If you cannot, do not submit yet.
Remember: buying proves only someone will sell, not that you are right.
Classify participants: makers, arbitrageurs, trend funds, hedgers, informed traders—when they appear and their traces. Makers deepen books; informed flows may increase volume before big price moves.
Research question: can trade data estimate the informed fraction of current counterparties? This begins Advanced E · Execution and microstructure.
Continue the project: compare post-fill price changes across counterparties.
Institutions are counterparties too: an institutional algorithm may sit opposite you. Institutions ask whose liquidity they supply and whose liquidity they consume.
Return sources: durable institutional income often compensates serving particular participants—for example, bearing risk for risk-averse people or executing urgently for others. Unclear services and beneficiaries often imply unsustainable returns.
Continue the project: explain institutional services and return sources.
Questions to take away
Apply three of the ten questions before trading:
Chapter self-test
No. At least four reasons exist: cash, risk transfer, presumed information, and execution provision. Bearishness is only one.
Faster, cheaper execution. Resting traders supply it, including companies specializing in and earning money from it.
They trade when favorable to them. Willingness to sell may reflect knowing prices will fall. This is information asymmetry or adverse selection; it reappears in Chapter 15.
Almost no trades, with prices jumping to the agreed level. Trading needs disagreement or differing needs.
One idea to take away
Markets exchange risk, liquidity, and information between buyers and sellers. Every trade has someone on the other side with different views and needs.
Record this learning session
Read means only that you confirm reading this chapter. Self-tests are your assessments against reference conclusions. Neither certifies mastery or professional level. Each click retains a timestamped local record.
Answer the core question and record a self-assessment
Why would someone sell you their BTC?
Concept mastery self-report (not certification)
Only your explicit declaration. Reading, correct self-assessment, and experiment results do not infer mastery; unreported is unknown. Revocation restores unknown and removes selected attachments.
Buyer：Not read
Seller：Not read
Risk transfer：Not read
Liquidity：Not read
Information：Not read
This chapter's self-report has not been read. No report does not imply mastery.
Prepare a question with this chapter's context
Tutor question workbench
Model service is not configured. Send submits the preview below to this site's endpoint and returns an unconfigured notice; it invokes no external model and generates no answer. Provider, runtime location, and retention remain undecided.
Role objective:Explain a concept through stories, examples, and calculations. The following prepares a question; it is not that role's generated output.
Foundation Chapter 1 · TRD-MKT-001 v1.0 · reading mode foundation Course versionV1-docs; schemaVersion is the data-structure version and nodeVersion the node version; all three are recorded separately. Reading mode is not self-reported Level.
Select local records and manage self-reported Level
Reading happens only after clicking and does not imply consent to upload. Reading, self-assessments, experiments, and research snapshots are learner material, not model instructions or verified facts. Do not include keys, identity details, or real account information.
Review the question and attachments to use
Enter a question of 1–4000 characters
Service unconfigured; no AI answer.
Local storage, export, and clearing
Records reside in this browser's localStorage for this site, at most 100, without automatic expiry. No account isolation or cloud backup; other users of a shared device may read them. Edit in one tab: concurrent writes may overwrite. Export promptly. Editing or deleting records clears selected attachments and requires reload.
Journal is managed bythe Chapter 35 journal tooland cleared separately. Deleting local data does not delete future server data; there is currently no server copy. Storage rejection will not be reported as success. Copy this page's preview.