Order Book

What is an Order Book?

An order book is a list of all pending buy and sell orders for a trading pair, showing the price and quantity at each level. It’s the core mechanism for price discovery on exchanges.

Order Book Structure

Two Sides

• Bids (Buy Orders): Orders to buy at specific prices
• Asks (Sell Orders): Orders to sell at specific prices

Example Order Book

        ASKS (Sell)              BIDS (Buy)
Price      | Amount       Price      | Amount
-----------+---------     -----------+---------
$70,050    | 2.5 BTC      $69,950    | 3.0 BTC
$70,025    | 1.2 BTC      $69,925    | 2.5 BTC
$70,010    | 0.8 BTC      $69,900    | 5.0 BTC
$70,005    | 0.3 BTC      $69,875    | 1.8 BTC

Key Order Book Concepts

Best Bid

• Highest price buyers will pay
• Top of the bid side
• In example: $69,950

Best Ask

• Lowest price sellers will accept
• Top of the ask side
• In example: $70,005

Spread

• Difference between best bid and best ask
• In example: $70,005 - $69,950 = $55
• Tighter spread = more liquid

Market Price

• Last traded price
• Between best bid and ask
• Where trades actually execute

Reading Order Book Depth

Depth Chart

Visual representation showing:

• Cumulative buy orders (green)
• Cumulative sell orders (red)
• Price on X-axis
• Volume on Y-axis

What to Look For

• Walls: Large orders at specific prices
• Support: Heavy buying interest
• Resistance: Heavy selling interest
• Imbalance: More buyers or sellers

Order Book and Liquidity

Deep Order Book

• Many orders at each price level
• Large trades possible without moving price
• Tight spreads
• Sign of healthy market

Thin Order Book

• Few orders at each price level
• Large orders cause slippage
• Wide spreads
• Higher risk for traders

How Orders Execute

Limit Orders

1. Added to order book at your price
2. Wait for matching order
3. Execute when market reaches your price

Market Orders

1. Match against existing orders
2. Fill immediately from order book
3. Take best available prices

Order Book on Exchanges

Binance

• Real-time order book display
• Depth chart visualization
• Trade history integration

Coinbase

• Available in Advanced Trade
• Order book depth view
• Price ladder format

Kraken

• Clear order book interface
• Depth chart
• Historical data available

Trading with Order Book

What Traders Analyze

1. Support/Resistance: Where are large orders?
2. Order Flow: Which side is more active?
3. Spread Changes: Is liquidity increasing/decreasing?
4. Large Orders: Institutional activity?

Order Book Patterns

Buy Wall Large buy order creating support:

• May indicate strong buying interest
• Can be real or manipulation
• Price often bounces at walls

Sell Wall Large sell order creating resistance:

• May indicate selling pressure
• Often placed at round numbers
• Can cap price advances

Spoofing (Illegal) Placing and canceling orders to deceive:

• Large orders appear then disappear
• Manipulates perception of supply/demand
• Against regulations

Limitations of Order Books

Hidden Orders

• Iceberg orders show only partial size
• Dark pools execute off-book
• Not all liquidity visible

Manipulation

• Walls can be fake (spoofing)
• Sudden cancellations
• Coordinated activity

Snapshot Only

• Shows current state only
• Changes rapidly
• What you see may not be what you get

Order Book vs AMM

Order Book (CEX)

• Discrete price levels
• Maker/taker model
• Centralized matching

Automated Market Maker (DEX)

• Continuous pricing curve
• Liquidity pools
• Algorithm determines price

Using Order Book for Entry/Exit

Entry Points

• Look for strong support levels
• Place limit orders above support
• Avoid buying into sell walls

Exit Points

• Identify resistance levels
• Place sell orders below resistance
• Watch for liquidity at target price

Order Book Data

Level 1 Data

• Best bid and ask only
• Basic price information

Level 2 Data

• Full order book depth
• All visible orders
• More detail for analysis

Level 3 Data

• Individual orders with IDs
• Institutional access
• Not typically available to retail