What is ladder trading?

By Kraken Learn team
10 min
31 oct. 2024
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A powerful trading tool for visualizing crypto markets 📊

  • Ladder trading uses a price ladder, displaying buy and sell orders at different price levels, to help traders make informed entry and exit decisions.

  • The price ladder offers real-time insights into market shifts, making it popular among day traders for its speed and efficiency, especially in trading multiple crypto assets.

  • Introduced by Trading Technologies, the price ladder revolutionized electronic trading, providing a comprehensive, intuitive tool for market makers, arbitrage traders, and scalpers.

 

Ladder trading is a type of trading strategy that uses a visual tool, known as a price ladder, to help inform traders’ decisions about where to enter and exit a trade. 

As the name implies, the price ladder displays a list of buy and sell orders at a range of price levels. Traders can see the number of limit orders at each level as well as the flow of market orders, which drive the price of an asset up and down the ladder. 

By examining the shifts in supply and demand, as well as the flow of orders and volume, traders can use price ladders to visualize how a market is evolving, in real-time. 

This popular approach, also known as Depth of Market (DOM) trading, is adopted by many day traders to react more quickly and efficiently to market movements, particularly when trading multiple crypto assets at the same time.

For more information, check out our Kraken Learn Center guide, What is crypto day trading?

Ladder trading

Candlestick price charts are said to show traders what has happened, while the DOM reveals what is happening.

When combining the two, the price ladder can be useful for giving traders like market makers, arbitrage traders, and scalpers a deeper understanding of the crypto market. 

This article will introduce ladder trading, explain its origin, and how it can be used by Kraken clients.

A brief history of ladder trading 📜

For generations, financial markets were moved by the hands and voices of traders, screaming their orders to a broker. This frantic and chaotic method gave way to electronic trading, with much of the traditional approach evaporating after 2010.

As technology advanced, so did the tools and methodologies on offer to aid electronic traders in their execution. One such innovation was the price ladder. 

Introduced by Trading Technologies at the turn of the century, ‘MD Trader’ would change the way that electronic markets were traded, giving professional traders a novel way to execute their orders.

Shortly after, retail traders were afforded the same access, and the price ladder has been widely available ever since. Today, ladder trading has become prevalent among intraday forex and derivatives traders, with many exchanges offering it either for free or for a nominal fee.

Ladder trading

On Kraken Desktop, traders will be able to use the price ladder tool completely free on the forthcoming desktop client.

Advantages of using ladders vs trade tickets 🎟️

Price ladders offer active traders two key benefits: speed and efficiency

Most crypto traders today will combine one or more of the following to analyze and trade markets:

  • Price charts.

  • Order form.

  • Depth chart (this is different from the DOM).

  • Order book.

  • Time and sales.

The image below illustrates a typical setup that traders might use:

Ladder trading Kraken Desktop

This layout is common across several crypto trading platforms and is generally considered sufficient by many traders.

It’s clear, customizable, and intuitive, but for a lot of seasoned investors, it is not optimal. This is where the price ladder is considered by some to be superior.

Standard setup

  • Price charts alone show us price history - what has already happened. This can be very useful for identifying important levels, but it doesn’t necessarily illustrate what’s happening at each precise moment. 

  • The standard setup does not offer an efficient use of space if you want to trade multiple assets simultaneously. Having each component visible for each asset requires a lot of space. 

  • Entering order details into order forms takes time. This isn’t an issue for swing traders, but for scalpers looking to catch sharp moves that come and go quickly, those crucial seconds can make all the difference.

Price ladder

  • All the features of the price ladder combined show us price action in real time, allowing traders to respond more quickly to market shifts. Traders might combine price charts with the ladder to see how traders behave at areas of interest.

  • Here, the price ladder is vastly superior as you can combine multiple streams of information into one compressed and informative interface for each asset. This more intuitive setup is favored by many traders as it offers a deeper insight into markets, and can be efficiently duplicated for multiple assets.

  • By determining your risk and sizing ahead of time, one-click trading enables you to enter without hesitation, knowing that the trade is risk-managed if it does not go in your favor.

Because price ladders are regarded as being more efficient at streamlining information, traders are able to survey multiple markets simultaneously, as well as dial into a market when required. 

By paying extremely close attention to the ladder, traders may be able to form a deeper connection with a market in a way that cannot be achieved with price charts alone. The intuitive nature of the ladder helps to explain why it remains a valuable tool for experienced traders.

How does ladder trading work? 🧐

The price ladder enables traders the ability to implement various strategies. 

By monitoring the ebb and flow of orders as well as market depth, traders may use the ladder module to execute trades with improved precision and speed. The last traded quantity (LTQ, see infographic below) shows traders how much of a particular asset was last traded at a particular price. 

Taking advantage of the various preset options—like one-click trading—dramatically reduces the time taken to prepare and execute a trade, when compared to manually filling out an order form.

Key components of price ladder trading ⚙️

A price ladder can be thought of as an ‘interactive order book’, incorporating point-and-click trade execution tools.

Price ladder

The center of the ladder displays a vertical list of price levels with corresponding buy and sell liquidity on the left and right-hand sides of each price, respectively. Here, traders can see the best current buy and sell price offered by the market, taking into account the spread.

Depth of bids/asks

These bars display how many limit orders are currently placed at each price level, indicating visually the market depth with a gradient alongside numerical data. 

NB: it is possible to amend the price increment displayed by the ladder, as detailed in the video below.

Buys/Sells column

This column displays any limit orders submitted by the trader using the ladder that are waiting to be filled.

Last traded quantity (LTQ)

This reflects the amount of an asset (such as Bitcoin BTC) last traded at that particular price.

Volume at price (VAP)

This reflects the number of assets traded between each price level in the last 24 hours.

Order types

Just like trade tickets, traders using ladders can choose to enter a variety of trade order types that include: limit, take profit, take profit limit, stop loss, stop loss limit and iceberg.

Scale into positions 🎚️

Another very useful function of the ladder is the ability to scale into positions. 

Using a price ladder, after determining the size of the position you want, clients can simply spread the orders over the ladder in any increment they like by clicking and dragging the mouse. By doing so, they’re able to create several limit orders that, when combined, add up to the total desired position size. 

You can configure scaled orders directly on a price ladder using various distribution profiles, including uniform, triangle, and exponential. This feature allows for fine-tuned customization, such as adjusting lot sizes and selectively skipping price levels, giving traders greater flexibility in executing their strategies with precision.

Using auto-join shortcuts on the price ladder 🪜

The auto-join feature is a powerful tool for traders looking to stay competitive in dynamic markets.

It allows you to automatically place orders that are offset from the current bid-ask spread by a defined number of price levels. This can be customized from 1 to 20 levels, with the option to add orders to either the bid or ask side of the order book, making it ideal for both active traders and market makers.

Auto-join is particularly valuable for market makers who need to keep their orders in sync with the ever-changing order book.

By setting the auto-join to a specific offset level, you can ensure your buy and sell orders are always positioned just right to capture price movements without having to manually adjust them.

For example, if the bid-ask spread is tight, a market maker might use auto-join to place buy orders at the second largest quantity level on the bid side with a one-level offset.

This means that as the spread shifts, the order will automatically adjust, staying close to the market without slipping behind. Similarly, a market maker could place sell orders with a two-level offset on the ask side, ensuring that they continue to provide liquidity even as conditions change.

Using auto-join shortcuts can make ladder trading more efficient, allowing you to respond with one-click to market movements and maintain a consistent presence in the order book.

This tool can be a great way to automate part of your trading process while maintaining the control you need over your strategy.

How do traders use the price ladder to read the market? 🧑🏽‍💻

The price ladder can be highly effective at showing:

  • Where lots of orders are stacked in the order book.

  • The depth of liquidity in a market.

  • At what levels buyer and sellers fought heavily, and who won.

  • When buyers and sellers are becoming exhausted, indicating a possible reversal.

  • The shift in personality and behavior of a market, with respect to order flow and changes in volume.

  • When traders place orders with no intention of having them filled (to misleadingly falsify supply/demand).

The price ladder offers experienced traders a more intuitive way to visualize crypto markets and can allow them to react to sudden changes more efficiently.

Kraken Desktop has been specifically designed to further streamline and improve the ladder trading process. This includes access to one-click trading and a range of built-in price ladder strategies.

Image of a line chart and a candlestick chart

Get started with Kraken Desktop

If you feel ready to integrate ladder trading into your crypto investment strategy, look no further than Kraken Desktop. 

It’s your one-stop destination for advanced crypto trading, with a fully customizable interface and access to over 210+ cryptocurrency markets.

Sign up for your free account today!

These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, stake, or hold any cryptoasset or to engage in any specific trading strategy. Kraken makes no representation or warranty of any kind, express or implied, as to the accuracy, completeness, timeliness, suitability or validity of any such information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Kraken does not and will not work to increase or decrease the price of any particular cryptoasset it makes available. Some crypto products and markets are unregulated, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your cryptoassets and you should seek independent advice on your taxation position. Geographic restrictions may apply.