As institutions continue to embrace digital assets, the demands on institutional trading platforms have never been higher. The evolving needs of market participants require robust, scalable and innovative trading infrastructure. While execution models such as central limit order books (CLOBs) and electronic communication networks (ECNs) have long been part of the trading landscape, their adaptation to digital assets presents both challenges and opportunities.
In this article, we will explore the features and functionalities institutional trading firms now require, the factors influencing the platform selection process and the pressing technical and business considerations shaping the future of digital asset trading.
The challenge of building an institutional trading platform
Institutions operating in the digital asset market demand features that mirror the sophistication of traditional finance while accommodating the unique requirements of crypto. These include ultra-low-latency execution, deep liquidity and flexible infrastructure. However, meeting these demands is no small feat, particularly in a market where volatility, fragmented liquidity and regulatory uncertainty abound.
Adding to this complexity, crypto trading operates on a 24/7/365 basis, requiring unparalleled system reliability and efficiency. Unlike traditional asset classes, which adhere to standardized lot sizes, digital assets can be subdivided into infinitesimally small increments, introducing new challenges for risk management, order matching and settlement.
The need for real-time processing and continuous market access pose uniquely daunting challenges, necessitating institutional crypto trading infrastructure that can handle both high throughput and precise trade execution at all times.
Key requirements for institutional trading platforms
To meet these complex needs, institutional trading platforms for digital assets must seamlessly blend advanced technology, reliability and adaptability to specific market demands. They must deliver access to deep liquidity and enable fine-tuned execution to support unique strategies. Furthermore, they must account for industry realities like increasing regulatory scrutiny and the rapidly expanding diversity of digital assets.
A few more details:
Speed and performance: High-speed execution is critical. For example, the CROSSx crypto ECN matches 99% of trades in single-digit microseconds and can handle up to a million orders per second, rivaling the fastest platforms in any asset class. Any platform that cannot process orders at near-instantaneous speeds will struggle to compete in institutional markets.
Minimized spreads and Market Impact: High-speed execution and market data that inform trade activity in real time, high-capacity throughput to support growth and spikes in volume, no restrictions on quotes and orders to empower market makers to price aggressively and compete for flow, liquidity tailored on a per-participant basis – these are key ingredients to achieve tight spreads and reduced market impact, and are hallmarks of the ECN model.
Diverse execution models: The era of one-size-fits-all trading platforms is over. Institutions need the flexibility to choose between execution models – from traditional CLOB setups to more tailored ECN configurations – depending on their strategies and liquidity needs. ECNs provide independent market data sessions and liquidity pools for each taker, eliminating many inefficiencies inherent in traditional models. This model enables greater flexibility, so firms can fine-tune their execution strategies, and can even be configured to behave like a CLOB. Conversely, a CLOB cannot easily be configured to operate as an ECN – that would require a ground-up rebuild.
Regulatory adaptability and settlement considerations: Institutions require fungibility in liquidity access, but they are often limited by incumbent venues that bundle credit and settlement services. The structure of these services influences the level of liquidity available and, in turn, the choice of trading technology. Market participants must have the flexibility to integrate with third-party credit and settlement solutions that align with their risk management strategies.
These demands underscore the complexity of delivering institutional-grade digital asset trading platforms that can withstand the challenges of this rapidly evolving market.
CLOBs vs. ECNs: A framework for decision-making
CLOBs: Firm yet restrictive
Central limit order books are defined by their simplicity: participants post firm bids and offers that are matched directly at visible prices. When clients opt to buy or sell, the order is matched right then and there, with the current bid and ask (and spread) displayed to all participants. Market makers stand ready to post firm orders at or near these prices, providing crucial liquidity to participants. It’s a straightforward model that doesn’t require much routing of information. If you see liquidity you want, you can take it on a first come, first served basis.
But while the centralized nature of this model can offer simplicity, that’s not always a good thing. It doesn’t matter how many or what kinds of participants are competing on these venues – everyone sees the same exact prices, market depth and liquidity. If one executes a huge trade, the others will be impacted. There’s nowhere to hide: the CLOB is the CLOB and the prices are the prices.
This seemingly democratized marketplace means that in practice, there’s really no such thing as makers or takers – participants can make and take liquidity. This can create powerful conflicts of interest. Instead of focusing on providing a crucial service to the market – quite profitably, in many cases – market makers are incentivized to execute trades against existing orders, at times operating as takers on the platform, which puts them in competition with other takers.
This dynamic also poses a challenge for the market makers who are actually making markets. Because they never know who their next counterparty will be, they are forced to price to the lowest common denominator – because when HFTs act as takers, market makers often end up losing a lot of money, and fast. This is why many CLOB-based venues rebate their market makers. The model makes it difficult to turn liquidity provisioning into a profitable business, so the incentive to do so must be created artificially.
CLOB-based trading is the default structure for nearly every crypto exchange because it is easier to build and deploy. However, this model does not address the need for independent liquidity pools, tailored liquidity or high-throughput execution, all of which are critical for institutions. The rigidity of CLOB structures also makes it difficult to accommodate the precision pricing and custom order sizing that digital asset markets demand.
ECNs: Flexible and adaptive
ECNs, on the other hand, are designed to offer greater flexibility, seeking to combine the best attributes of simple aggregators and CLOBs while going one step further. Not only can these venues cross one taker to another – they can also run a quote-driven model on configurable liquidity, creating a far more efficient market.
Each taker on an ECN sees an independent market data session and liquidity pool, with customized spreads and market depth suited to their needs. Market makers cannot act as takers – their prices are available only to designated taker participants, so all entities can transact on a more level playing field.
These features reflect the fundamental nature of market making, where success is defined by two primary factors: speed and access to data. Because CLOBs force all market participants into the same pool, it’s impossible to tell where orders originated – and, by extension, to price with precision. A firm might make a huge profit on retail flow one day and then lose far more the next day because an HFT increased its activity – their behaviors are so distinct that the aggregated CLOB-wide data is essentially meaningless. ECNs remove this uncertainty by providing data on each individual entity. Firms can analyze the behaviors of anonymized participants, make assumptions about how they will react to a given price and avoid transacting with those counterparties as they see fit.
Meanwhile, the quote-driven nature of ECNs enables market makers to operate far more aggressively and flexibly. If a firm’s fill rates aren’t satisfactory, it can continuously adjust its prices and make an optimal trade based on current market dynamics. The risk of being caught on the wrong side of a lopsided transaction is far reduced, giving liquidity providers the security they need to quote the prices the market is looking for. In this way, ECNs deliver an incredible amount of flexibility and choice for participants, helping all sides of the market attain success.
By creating segmented liquidity pools tailored to specific participant types, ECNs enable more efficient and equitable trading dynamics. Market makers can provide liquidity with precision, while takers benefit from bespoke pricing and execution options.
Crypto’s unique attributes – such as the lack of standardized lot sizes and the need to support 24/7/365 trading – make ECNs a superior execution model. The ability to process trades at near-instantaneous speeds while enabling firms to fine-tune liquidity access means ECNs are the ideal infrastructure for institutional crypto trading.
Build vs. buy: A critical decision
For institutions considering their trading infrastructure, the build-versus-buy dilemma looms large. Most retail brokerage platforms were not designed for 24/7/365 trading, which is why very few firms attempt to build their infrastructure in-house. Adapting a legacy trading system from equities, FX or fixed income to handle digital assets is an immense challenge – one that often results in suboptimal performance.
Platforms built from scratch specifically for crypto have a significant advantage in terms of throughput, configurability and speed. Partnering with an established provider specializing in digital assets can offer a faster path to institutional-grade execution while avoiding the complexities of developing new technology from the ground up.
The future of Digital Asset trading platforms
The digital asset market has exposed institutional demand for real-time risk management and settlement. Unlike traditional markets that operate within limited hours and have standardized lot sizes, crypto has demonstrated the feasibility and benefits of continuous trading. Institutions now recognize the inefficiency of legacy settlement processes, where a margin call on a Friday night cannot be addressed until Monday morning despite funds being readily available. This inefficiency – exposed by the crypto market – has led many to question why real-time settlement is not yet standard across the capital markets.
Additionally, the precision of price and size enabled by crypto markets is increasingly appealing from a risk management perspective. Traditional financial markets have relied on standardized lots, but digital assets prove that precision trading offers clear advantages. Institutions are beginning to embrace the idea that breaking away from these historical constraints can improve liquidity efficiency and trade execution quality. As digital assets continue to evolve, institutional trading platforms must focus on high-speed execution, deep liquidity and next-generation ECN mechanics. The ability to integrate seamless, real-time settlement and precision trading will play a heavy role in determining which platforms will win in the coming decade.