Order Book
IntermediateAn order book is an electronic list of all outstanding buy and sell orders for a security, organised by price, showing how many shares or units buyers want to buy and sellers want to sell at each price level.
Exchanges and trading platforms use order books to match buyers and sellers. Buy orders, called bids, are listed from the highest price downwards. Sell orders, called offers or asks, are listed from the lowest price upwards.
The highest bid and lowest ask form the best prices, and the gap between them is the bid-ask spread. When a buy order matches a sell order at the same price, a trade happens.
For example, an order book might show buyers wanting 2,000 shares at 49.98 and 5,000 at 49.97, and sellers offering 1,500 shares at 50.00 and 4,000 at 50.01. A market order to buy 1,500 shares would be filled at 50.00.
The order book shows market depth and liquidity. A deep order book, with large orders near the current price, means large trades can be made without moving the price much. Traders watch order books to gauge supply and demand, although some large orders are hidden or split into smaller pieces.
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