What Is Order Book?
Also known as: Limit Order Book
In short
An order book is the record on an exchange, listing the pending buy and sell orders for a given trading pair by price level, used to match buyers and sellers.
On one side of the order book are buyers' offers (bids), and on the other side are sellers' asks. The difference between the highest bid and the lowest ask is called the spread. The total amount waiting at each price level shows market depth; in a deep order book, large orders can be filled without moving the price much.
Limit orders are added to the book at a specific price and provide liquidity; market orders, on the other hand, are matched instantly with the best available opposing orders and consume liquidity. For example, in a book with 2 units waiting at 100 dollars and 5 units at 101 dollars on the sell side, a market buy order for 4 units buys 2 units at 100 and 2 units at 101; this causes the average price to rise, that is, slippage. On centralized exchanges, high-speed matching engines perform this matching.
Order books are the main workspace of market makers. Manipulations such as placing large orders with no intention to execute them and then canceling them to create a misleading picture of supply and demand (spoofing) can make the book harder to interpret. Most decentralized exchanges, on the other hand, use the automated market maker (AMM) model instead of an order book.
Last updated: · This content is for information purposes only and is not investment advice.