An order book is a list of buy and sell orders for a specific security or financial instrument organized by price level. An order to buy is called a ‘bid’ and an order to sell is called an ‘offer’ or ‘ask’.
In an order book, you can typically see the following information:
- Bid: The highest price that a buyer is willing to pay for an asset.
- Ask: The lowest price at which a seller is willing to sell an asset.
- Bid Size: The number of shares, contracts, or lots that buyers want to buy at the bid price.
- Ask Size: The number of shares, contracts, or lots that sellers want to sell at the ask price.
An order book is dynamic, meaning it’s constantly updated in real-time throughout the day. It provides detailed insight into the market’s supply and demand at different price levels. By analyzing an order book, traders can make better-informed decisions by seeing where the orders are large and small, which could indicate potential resistance and support levels.
Order books are a key tool used in the stock, forex, cryptocurrency, and other financial markets. In the stock market, for example, the NASDAQ operates an electronic order book. Most cryptocurrency exchanges also offer an order book where users can see the interest of other buyers and sellers.