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What is Order Book and Market Depth
What is Order Book and Market Depth

An overview of the order book and market depth.

Updated over a week ago

What is an Order Book?

An order book refers to a digital list of buy and sell orders for a specific asset organized by price level. The interests of both buyers and sellers are represented in order books. These lists display the dynamic connection between buyers and sellers in real-time by visualizing the outstanding orders for a particular asset.

The quantity of orders being bid on or offered at each price point, which is also known as market depth, is listed in an order book. It provides essential trading information, which enhances market transparency. The depth and liquidity of the order book play a critical role in determining the price.

How Does an Order Book Work?

An order book is continuously updated throughout the day in real-time, reflecting the actual intentions of the market participants.

There are typically four parts to an order book: buy orders, sell orders, price, and size

  • Buy orders contain information about the buyers, including all bids and the amount they want to purchase.

  • Sell orders contain information about the sellers, including all offers and the amount they want to sell.

  • Each price level will show the given quantity of orders (size) that participants are willing to buy or sell the asset.

The order book assists traders in making more informed trading decisions. They can see order imbalances that may provide clues to the asset's direction in the short term.

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