Order Book
Definition
A real-time list of all outstanding buy (bid) and sell (ask) orders for a security, organized by price level, showing the supply and demand at each price point.
The order book is the central mechanism of price discovery on exchanges. It displays all pending limit orders organized by price — buy orders (bids) on one side and sell orders (asks) on the other. The highest bid and lowest ask define the current market price, and the gap between them is the bid-ask spread.
Order book depth — the total volume of orders at various price levels — reveals how much buying or selling pressure exists. A "thick" order book with large volumes at many price levels indicates high liquidity and stability. A "thin" book with small volumes suggests that large orders could significantly move the price.
Professional traders and algorithms analyze order book dynamics to make trading decisions. Large visible buy orders (bid walls) may indicate strong support at a price level. Large sell orders (ask walls) may indicate resistance. However, order book manipulation — placing large orders with no intention of filling them ("spoofing") — is common, especially in less regulated crypto markets.
On traditional stock exchanges, most orders are now handled by electronic market makers and dark pools, so the visible order book represents only a fraction of actual trading interest. On crypto exchanges, the order book is more transparent but also more susceptible to manipulation.
For retail investors, understanding the order book helps explain why market orders on illiquid assets can get poor prices. If you place a market buy for 10,000 shares but only 2,000 are offered at the best ask, your order will "walk up" the book, filling at progressively higher prices. This is why limit orders are preferable for larger trades or less liquid assets.
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Frequently Asked Questions
Should I use the order book to make trading decisions?
For long-term investors, the order book is largely irrelevant — fundamental value matters more than short-term supply and demand. For active traders, order book analysis can help with entry and exit timing, but beware of spoofing and hidden liquidity. Most visible order book data is of limited predictive value.
Why do crypto order books look different from stock order books?
Crypto order books are more transparent (fewer hidden orders) but also thinner and more manipulated. Crypto markets lack regulations against spoofing that stock markets have. The 24/7 nature of crypto also means order book depth varies significantly by time of day and day of week.