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What is an Order Book?

Updated: 36 minutes ago

An Order Book is an electronic list of orders to buy and sell a specific asset, arranged by price level. It represents the interests of buyers and sellers, displaying a dynamic relationship between them by visualizing a list of unfilled orders for a specific asset in real-time.

The number of orders placed for trading or available at each price level is often referred to as the market depth, which can also be seen in the order book. They provide essential information for trading, enhancing market transparency. The depth and liquidity of the order book play a crucial role in price formation.

How Does the Order Book Work?

Almost every exchange uses an order book to display orders for various assets such as stocks, bonds, currencies, and cryptocurrencies like Bitcoin. Information on buying and selling may be displayed at the top and bottom of the screen or on the left and right.

The order book is constantly updated in real-time throughout the day, meaning it is dynamic and reflects market participants' intentions in real-time.

Typically, the order book consists of four parts: buy orders, sell orders, price, and size.

  • Buy orders contain information about the buyer, including the desired price and quantity they want to buy.

  • Sell orders contain information about the seller, including the desired selling price and quantity they want to sell.

  • Each price level displays the available quantity of orders (size) that participants are willing to buy or sell.

  • The highest buy orders and the lowest sell offers are at the top of the order book. Order books on platforms like Binance show the accumulated liquidity volume for each side of the market (buy/sell).

The order book helps traders make more informed trading decisions. They can see discrepancies in orders that may provide a clue about the asset's short-term direction.

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