# True Price and Differences in CoveTrader

In CoveTrader, we calculate the "True Price" for every instrument.

#### What problem are we solving?

Bids, offers, and trades can often be of very small size and give a misleading view of the true price. And there can be large orders or size imbalances in the book that skew the true market away from the top of book quotes. There is the additional problem of different exchanges trading at different prices, reflecting either short-term supply and demand issues, or longer-term structural differences.

#### How do we calculate True Price?

At the most basic level, we look for a meaningful amount of liquidity on the bid side and find the average price. Then we do the same with the ask side, then we take the average. Since each instrument has a different liquidity profile, we look for a different amount of liquidity in each product. In BTC-USD, for example, we take the average of the price to buy an equivalent of \$1,000,000 and the price to sell an equivalent of \$1,000,000. This value is updated in real-time in the Best Bids & Offers (BBO) widget and is called the True Price.

#### What is Diff?

In the Recent Trades widget, you'll see Diff listed as a column. Diff is the difference of traded Price and True Price. For example, if a trade occurs at 10,895 while True Price is 11,000, we display a Diff of -5.00, which means that the trade occurred \$5.00 below the true price across the market. A high Diff in Recent Trades might be an indication of a profitable trading opportunity or perhaps shifting momentum in the underlying asset price.

#### Exchange-level True Price and Diff

The True Price in the BBO and the Diff in Recent Trades are based on the aggregate book reflecting multiple exchanges. However, if you want to compare the price across various exchanges, then you should look at the Exchanges window in the bottom-left corner of the Analytics widget. The exchange True Price is calculated the same way as the aggregate True Price, except that it looks for only 10% of the liquidity (e.g. \$100,000 for BTC-USD). The Diff then reflects the difference between the exchange True Price and the aggregate True Price. For example, if Bitfinex Diff is 11.26, it means that the price on Bitfinex is roughly \$11 higher than the average across all the exchanges. A large Diff in Exchanges window can give an idea of whether an exchange is relatively cheap or expensive.