Why a coin has a price, and why thin coins slip

Why does a coin show a price, and why might your trade not get it? After reading this page, you can read a price as the last trade and tell a bid from an ask. You can also say why market cap is not cash, a floor is only a claim, and big orders on thin coins slip.

The price on a chart is a trade that already happened

The latest price on a coin's chart is its last traded price: the price of the most recent finished trade, on one market, at one moment.

Right now, other people may be offering to buy or sell at other prices: possible trades, not finished ones. In Offers can change before any trade, headlines move offers, and only trades move the last price.

A past trade does not mean anyone will buy from you at that price. A buyer must be willing and able to buy now, at a price you both accept (Finished trades and live offers). Attention is not an order either: a crowd watching a coin is not a buyer.

Buyers bid, sellers ask

A bid is an offer to buy at a stated price and quantity, and an ask is an offer to sell. Tell them apart by the words "will pay" and "will sell", not by which price is higher (Read a bid and an ask). An order book lists both sides at one moment: the best bid is the highest a buyer offers, the best ask the lowest a seller asks.

The spread is the best ask minus the best bid. It is not a fee printed on a receipt, yet crossing it costs you (The cost of crossing the spread). Say the best bid is 20 dollars and the best ask is 21, so the spread is 1 dollar. If you bought one coin at 21 and sold it straight back at 20, you would lose 1 dollar with no price move at all.

A buy meets the asks. A sale meets the bids, from the highest down. The lesson Sellers look at bids puts it plainly: selling at the last price would need a buyer bidding that much right now.

Every offer has a size, the number of coins offered at that price. A shown size is not held for you: someone can take it or cancel it before your order arrives.

Market cap is an estimate, not a pile of cash

Market capitalization, or market cap, is one coin's price times the number of coins counted as circulating (Attention, big holders and market value). Circulating is a data site's estimate of the coins in public hands. So one trade at a new price changes the whole market cap, even though most coins never traded at it.

Easy to mix up: market cap and money in the coin. When the price rises, the market cap rises with it, but that much cash did not come in. The same coins were repriced, and sellers cannot all cash out at that value.

The lesson A market cap is not a buyer shows two tokens with equal market caps where only one has a known buyer. A claimed value is not a price either (A price comes from the market).

Who pays a seller? A buyer. In Where sellers get paid, a practice coin has no order book: its only buyer is its pool, a pair of token reserves that a program swaps between. The pool holds the coin and USDC, a coin designed to track the dollar, and pays sellers from its USDC.

The coin last traded at 2 USDC, and 10,000,000 count as circulating: a market cap of 20,000,000 USDC. Yet the pool holds 100,000 USDC, half of one percent of the cap, and can never pay out even all of that. Each coin sold gets a lower price than the one before.

Your mark is your coins times the last price. Selling 10,000 coins, a mark of 20,000 USDC, would get about 16,667 from this pool, and the bigger the sale, the bigger the gap.

Can a coin's price have a floor?

A price floor is a price someone says a coin will not fall below. Whether it holds depends on the rule or promise behind it, and on the money to back it. What could hold up a price floor? tests the usual claims.

The cost of making a coin sets no floor, because no buyer has to repay it. Nobody has to pay you back what you paid earlier either. A level where the price bounced before is history, not a promise.

A supply cap, a limit on how many coins can ever exist, forces nobody to buy, so it sets no floor either: scarce is not the same as wanted. Even a buyback promise, a pledge to buy coins back, needs someone who must pay, clear conditions and the money to do it.

So if you buy a coin outright, without borrowing, you can lose everything you paid for it. The coins may still exist, worth almost nothing. That purchase alone cannot cost you more than you paid.

Why thin coins slip: price impact and slippage

A thin board is an order book with few offers close to the price. Order size and thin boards compares your order with those offers, never with the coin's total supply or how many people use the app.

A big order uses up the best offers and reaches worse ones, since it can only use the offers already there: the coin's liquidity. The extra cost from your own size is price impact.

Say the asks are 40 coins at 20 USDC, 40 at 21 and more at 22. A buy of 10 coins pays 20 each. A buy of 90 pays 20 for the first 40, 21 for the next 40 and 22 for the last 10, about 20.67 each on average (Walking the book).

Pools work the same way. In Same order, two pools, two pools show one price, but one holds 990 SOL and the other 10. The same 10 SOL buy gets 9,900 coins from the deep pool and 5,000 from the thin one: 1 percent lost to impact against 50 percent.

That is why thin coins draw wild wicks. A candle is one bar on a price chart, summing up the trades of one stretch of time. Its wick is the thin line out to the highest or lowest trade, which one far-off trade can set alone (Few trades make each candle).

In The wick, one buy moves a thin pool far and a later sale brings it back, leaving a tall wick: one order's path, not a price anyone can trade at later. A sale of 2,500 coins priced at that wick looks worth 5 SOL, but the pool pays 2. So price a sale from what the pool holds now, never from a wick or a last price.

The lesson Four reasons a result differs from the price you read names the causes: a fee, an offer that changed before your order arrived, your own size reaching worse prices, and not knowing in advance what will fill. Slippage is the difference between the price you expected and the price you got. It leaves out the fee, and it can go for you or against you.

Two prices, two moments splits slippage in two: offers that changed before your order arrived, and your own size, which is your price impact. A smaller order removes only the second part. On a pool, the estimate shown before you send already includes your own impact, and Quote drift is the pool moving while your order waits.

Read your paper trade receipt

A paper trade on Trenches uses practice money against real market prices. No order reaches any market, so the app works out what each order would get. Before you buy, it shows a quote: about how many tokens you would get, your order's impact, and the fee (A paper trade uses real prices and virtual cash).

In the app, the fee is 1 percent on memecoins and 0.25 percent on major coins such as Bitcoin. Impact depends on your size against the pool's liquidity, and it shows up as a worse fill price, not a fee line. The quote is an estimate. The fill is what your order actually got, and it can differ if the price or liquidity changed first.

Your position is the coins you hold. Your cost basis is the cash you spent to open it, fee included. So right after you buy, your coins are worth a little less than you paid: the fee and impact are already paid.

Market value, the mark from earlier, is what the screen shows: tokens held times the latest price. A sale pays less, since it has impact and pays the fee, and the smaller the pool, the less a sale gets (Value on screen versus cash from a sale).

In the unit review, Review a whole practice trade, 50 dollars goes in and 48.91 comes back at unchanged prices. Fees on the way in and out took 0.99, and impact took 0.10. A paper result shows what the model paid, not what the same trade would get with real money. Sizing and risk on thin coins: who buys your exit takes the thin board further.