What Is an Order Book?

Order Book: A digital list that shows all the buy and sell orders for a particular asset, like a stock or cryptocurrency, in real-time. It displays orders from traders who are willing to buy or sell at specific prices, helping to create market transparency.

How It Works

• Buy Orders (Bids): These are orders from traders who want to buy the asset at a specific price. The highest bid price is always at the top of the order book.
• Sell Orders (Asks): These are orders from traders who want to sell the asset at a specific price. The lowest ask price is listed at the top of the sell side.

The spread is the difference between the highest buy price and the lowest sell price. The order book helps match buyers and sellers.

Real-World Example

Imagine you're looking at the order book for Bitcoin:

• Buy Orders (Bids):
• $30,000 for 1 BTC
• $29,950 for 2 BTC
• $29,900 for 5 BTC
• Sell Orders (Asks):
• $30,100 for 1 BTC
• $30,200 for 2 BTC
• $30,300 for 3 BTC

The spread is the $30,100 sell order and the $30,000 buy order, so there’s a $100 difference.

When a buyer matches a seller, the transaction is executed at an agreed price, typically at the price of the lowest ask or highest bid. If no match is found, the order stays in the order book until it’s either filled, canceled, or adjusted.

Key Takeaways

• Transparency: The order book helps you understand the current market sentiment by showing where people want to buy and sell.
• Market Depth: The order book shows the depth of the market, meaning how many orders are stacked at each price level. A thicker order book with more orders at each price level indicates more market activity.
• Price Discovery: The order book helps in determining the price of an asset based on the current supply and demand.