> For the complete documentation index, see [llms.txt](https://funarchy.gitbook.io/funarchy/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://funarchy.gitbook.io/funarchy/security-for-prediction-market/trading-mechanism.md).

# Trading Mechanism

Currently, major prediction market platforms structure trades by choosing either a centralized limit order book (CLOB) or an AMM (LMSR or FPMM) structure. 

CLOB (Centralized Limit Order Book) is the most widely used trading method in traditional financial markets. It's a standard structure where buyers (Bid) and sellers (Ask) submit limit orders at their desired prices, and the exchange matches these orders by placing them in the order book.

An Automated Market Maker (AMM) automatically executes trades using a mathematical pricing formula without an order book. It is a decentralized structure that allows all users to instantly trade based on assets deposited in a liquidity pool. \
Market makers based on the Logarithmic Market Scoring Rule (LMSR) and Fixed Product Market Makers (FPMM), which are widely used in prediction markets, are designed to provide information aggregation and continuous liquidity.

The purpose of this page is to verify that the verification points required by each mechanism are properly implemented throughout the entire process, from market trading to position settlement. It summarizes the types of vulnerabilities repeatedly observed in CLOB and AMM structures and systematically describes their impacts and mitigation strategies.

### Trading Mechanism Flow

<figure><img src="https://4210179539-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F2DiVEbUgCTsp2iPassR9%2Fuploads%2FJovwAry7ABxqb3pJwjUe%2Fimage.png?alt=media&amp;token=597cb3d6-b02f-4cab-9dc6-adeb9a01bddf" alt=""><figcaption></figcaption></figure>


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