Order Book
What Is an Order Book?
An order book is an electronic list of buy and sell orders for a security or financial asset organized by price level. It shows the quantity of shares or contracts investors are willing to buy or sell at specific prices.
Order books are used in stock exchanges, cryptocurrency markets, and other electronic trading platforms.
Why It Matters
Order books provide transparency about market activity and supply and demand. Traders can analyze order book data to understand potential price movement and market sentiment.
They also help exchanges match buyers and sellers efficiently.
How an Order Book Works
Order books display two sides:
- bids – prices buyers are willing to pay
- asks – prices sellers are willing to accept
Orders are ranked by price and time priority.
The difference between the highest bid and lowest ask is known as the bid-ask spread.
Example
If the highest bid for a stock is $49.95 and the lowest ask is $50.05, those prices will appear at the top of the order book.
Order Book vs Trade History
- Order book shows pending buy and sell orders.
- Trade history shows completed transactions.
FAQs About Order Books
Do retail investors see order books?
Many trading platforms provide simplified order book data.
Why do traders monitor order books?
They can reveal buying or selling pressure.
Do all markets use order books?
Most electronic trading markets use order books to match trades.
Related Terms
