A buy wall is the result of a single huge buy order or the composition of multiple large buy orders that are put at the same price in the order book of a particular market. Buy walls can be created by a wealthy individual, group of traders or institutions.
In cryptocurrency exchanges
, trading is made via an order book, where buyers indicate their buying prices (bids) and seller indicate their selling prices (asks). Essentially, buy walls prevents market prices from dropping because they create a massive amount of orders at the same price which requires large amounts of money to be executed and passed over.
Buy or sell walls
usually occur when large holders (whales) of any cryptocurrency want to control the prices to the best of their interest. Therefore, whale
traders regularly create buy and sell walls in an attempt to manipulate the markets.
Once big buy or sell orders appear in the order book, other traders tend to place their orders right after the walls. For instance, if a big buy wall for Bitcoin
is placed at $5,000.00, other traders that are willing to buy tend to place their order at $5,000.01 or above. They do so because they believe there is a very small probability of their orders being filled if placed together or behind the wall (at $4,999.99 or less).
In practice, however, most buy and sell walls only appear for a short period of time, and their orders are not filled entirely. It is also common to see buy and sell walls moving up or down depending on the movements of the market. Automated trading algorithms
(trading bots) are likely to be responsible for that.
Although less common, when a bearish market downtrend is really strong, buy walls can be quickly “eaten up,” having all their orders filled in a matter of seconds.