Definition
An order book records resting buying and selling interest for a particular market. Buy orders are bids and sell orders are asks. A display may aggregate several orders into one price level, so the visible quantity is not necessarily one trader’s order.
How It Works
The highest bid and lowest ask form the top of the book. Deeper levels show quantities at less competitive prices. Incoming orders can consume several levels, producing an average fill price different from the first quote. For example, buying more than the quantity offered at the best ask may require paying higher prices for the remainder.
The book updates as orders are submitted, canceled, or filled. It is different from trade history, which records completed transactions. Matching priority depends on venue rules.
Key Considerations
Displayed liquidity can disappear before an order arrives, and hidden orders may not appear in full. A large buy or sell wall is not a reliable forecast: orders can be canceled or used misleadingly. Evaluate depth alongside executed volume and the size of the intended trade.