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Order Book Meaning

Sep 4, 2023 | Updated Sep 4, 2023
An order book is an electronic list of all open buy and sell orders available for a specific trading pair on an exchange or marketplace. The buy and sell orders are organized by price levels.

What is an Order Book?

An order book is an electronic ledger of a digital asset’s real-time buying and selling activities on a specific exchange or marketplace. Exchanges or marketplaces use a matching engine to match and fulfill the buy and sell orders for market participants. An exchange can only be as efficient and robust as its order-matching system.

Order books typically contain buy orders, sell orders, and market order history of a particular asset.

  • Buy orders contain all the bid prices, which is the highest price a trader is willing to pay to buy an asset, such as a cryptocurrency. 
  • Sell orders contain information regarding all the ask prices or offers, which is the lowest price a market participant is willing to accept for a specific asset.
  • Order history displays all the past transactions that have taken place in the specific market.

The orders are often color-coded, with red typically representing sell orders while green represents buy orders.

Understanding Order Books

The difference between the bid and ask prices is known as the bid-ask spread, and shows the supply and demand strength of a particular cryptocurrency. An imbalance between the two may indicate the market direction. For example, if there are more buy orders than sell orders, or buyers are willing to pay a higher price than the sell order, increased demand could indicate that the market price of an asset is rising. 

In most cases, order books only contain limit orders, which are fulfilled when a trader’s specific price is attained. Orders that are fulfilled using current market prices are called market orders. A marketplace’s capacity to fulfill relatively large market orders without significantly affecting the cryptocurrency’s value can be used to measure the current market depth.

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