# Trading
## Overview
Long (short) options are represented as an [ERC-1155 token](https://eips.ethereum.org/EIPS/eip-1155) in a wallet. It allows any EOA or Contract address to easily transfer, trade, or exercise (settle) the option at a future time. When taking liquidity from any source, a transaction fee will need to be paid. More details on fees can be found [here](/the-premia-protocol/concepts/fees.md#trading-fees).
While all options settle within their respective pools, it’s possible to interact with *multiple* sources of liquidity for the same option. Users of the [Premia Interface](/what-is-premia.md#the-premia-interface) or Premia v3 SDK will have easy access to the best quotes from each source. Please see here for more details about receiving a quote.
There could be up to 4 sources of liquidity for a given option:
1. AMM - Range Orders
2. Orderbook / RFQ System
3. Vaults
4. External Protocols / Third Parties
Interacting with the [AMM](#amm) and [Orderbook / RFQ](/the-premia-protocol/options-on-premia/order-book-vs.-amm.md) System can be done directly via the `IPool` interface while [Vaults](/the-premia-protocol/concepts/vault-depot.md) and [External Protocols](#external-protocols-third-parties) would involve directly corresponding with their contracts or interfaces if not available on the Premia Interface or Premia v3 SDK.
## AMM
Traders (takers) on the Premia v3 exchange can receive a quote to buy (sell) an option from LPs in an option pool at the given quote price using `getQuoteAMM`. If the taker deems the quote acceptable, they can `trade` the option and pay (receive) a premium in addition to receiving long (short) option contracts in the form of [ERC-1155 tokens](https://eips.ethereum.org/EIPS/eip-1155).
The trade function has 3 inputs: `size`, `isBuy`, and `premiumLimit`. The `size` parameter refers to the order size, `isBuy` is a boolean to signify trade direction, and `premiumLimit` is used for slippage control. If an order trades beyond the `premiumLimit`, ie. the average execution price of a buy (sell) order is above (below) the `premiumLimit`, the transaction will revert.
{% hint style="info" %}
The difference between a pool’s current `marketPrice` and `getQuoteAMM` in the `IPool` interface is the *price impact* of a potential trade. This is a function of market liquidity and order size, where more a higher ratio of order size to existing liquidity will result in a higher price impact and vice versa.
{% endhint %}
It is possible to pay/receive premium/collateral for an option in the token of a user’s choice. This requires the user to define their swap parameters in the form of *calldata*, which will enable the swap to be executed on-chain before or after the necessary action to convert a token. The `swapAndTrade` and `tradeAndSwap` functions on each AMM pool can be used to facilitate this feature. More details can be found in the `IPool` interface within the Contract section.
## Orderbook / RFQ System
### Makers
Market Makers can provide quotes to the Orderbook either via [Orderbook API](/developer-center/apis/orderbook-api.md) (off-chain) or on-chain via `add` within the `IOrderbookStream` interface. An on-chain event is emitted with the details of each order. This acts as a transparent/capital efficient database for orders. Off-chain indexers can track the state of the Orderbook through these events.
A quote will have several parameters, among them a `deadline`. The deadline will specify how long a quote will be valid for. Alternatively, orders can be cancelled using `cancelQuotesOB` in the `IPool` Interface if an order needs to be cancelled before the deadline is reached. Multiple quotes can be cancelled at once by passing a list of quotes. Cancelling quotes can only be done on-chain.
### Takers
While takers will *fill* their order on-chain, the process of *getting* a quote is done off-chain via the [Orderbook API](/developer-center/apis/orderbook-api.md). We index all quotes in our subgraph, which users can get from the [Orderbook API](/developer-center/apis/orderbook-api.md).
Once a taker has a quote they would like to fill, the order details need to be passed on-chain. The [fillQuoteOB](https://docs-solidity.premia.finance/contracts/pool/IPoolTrade.sol/interface.IPoolTrade.html#fillquoteob) function can be used to fill a quote using the `IPool` Interface.
Traders can verify if a quote is still valid in the Orderbook by calling [isQuoteOBValid](https://docs-solidity.premia.finance/contracts/pool/IPoolTrade.sol/interface.IPoolTrade.html#isquoteobvalid) with the same inputs as [fillQuoteRFQ](https://docs-solidity.premia.finance/contracts/pool/IPoolTrade.sol/interface.IPoolTrade.html#fillquoteob). It is also possible to check the fill status of a quote by using [getQuoteOBFilledAmount](https://docs-solidity.premia.finance/contracts/pool/IPoolTrade.sol/interface.IPoolTrade.html#getquoteobfilledamount).
More details on how the orderbook architecture can be found in Advanced Concepts under [Orderbook & Request-for-Quote (RFQ)](/the-premia-protocol/concepts/orderbook-and-request-for-quote-rfq.md)
## Vaults
Each vault will have its own unique contract and functions, however, each must implement the `IVault` interface to be integrated in the [Premia Interface](/what-is-premia.md#the-premia-interface) and [Premia V3 ](#user-content-fn-1)[^1]SDK. If a third party vault correctly implements the `IVault` interface, it is eligible to be added to the V3 Vault Registry, which means its quotes will be automatically included in platform-wide quote streams.
Vaults need to implement the `getQuote` function, allowing users to request the vault’s price for a specific option (`strike`, `maturity`, `isCall`), including trade `size` and direction (`isBuy`). The vault should return both the `maxSize` and `price` for the trade, including a `maxSize` of 0 if the option is not offered by the vault. To enable quotes to be filled, vaults should implement the `trade` function with the same parameters as the `getQuote` function.
In addition to implementing the above functions, vaults will additionally need to emit an `UpdateQuotes()` event (with no parameters) any time the vault’s quotes change, in order for the Premia Interface and Premia v3 SDK to track quote changes.
Anyone interested in learning more about developing vaults on top of Premia v3, [Reach out](broken://pages/0CmqAVOe2KapHYrbKaVr#media-kit) to build with us!
## External Protocols / Third Parties
It is entirely possible for other protocols/users/vaults to utilize the pools strictly as a settlement layer and exchange options outside of Premia. To be able to do this, the `writeFrom` function can be used.
`writeFrom` is a method that will mint both the long and short option, and send each to the designated addresses for `underwriter` and `longReceiver`. In order to invoke this function, the collateral for the short position must be provided. Using the `writeFrom` function will incur a transaction fee equal to 0.3% of the notional value:
$$
Minting:Fee = 0.003*Size*Collateral
$$
Collateral is 1 for calls and the strike price for puts. In other words, the minting fee here is denominated in the collateral of the option.
[^1]:
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