Order book & Trades

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Order book & Trades

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Order book includes real-time buy orders (bid prices), sell orders (ask prices) from an exchange for a particular asset. These prices are indications of buy/sell interest from various market participants including market makers, institutional and retail traders.

The order book also shows order imbalances that may provide clues to a stock’s direction in the very short term.  For example, a large imbalance of buy orders versus sell orders may indicate a move higher in the stock due to buying pressure. Traders can also use the order book to help pinpoint an asset’s potential support and resistance levels. A cluster of large buy orders at a specific price may indicate a level of support, while an abundance of sell orders at or near one price may suggest an area of resistance.

BUY orders get filled at Ask price, and SELL orders get filled at Bid price.  The highest Bid and lowest Ask prices are also called the “top of the book”.  Also, notice the spread between the Bid / Ask price (top of the book) – tight spread (small difference) is indicative of an efficient, liquid market, and vice versa.  For assets with wide spreads (low liquidity), be sure to use Limit order types to minimize slippage (order execution at a poor price).

Each Bid / Ask price has a volume along with it, which forms the market depth.  Traders should pay close attention to market depth if they’re going to trade large size order in a relatively illiquid asset.

The order book is also accompanied by a recent history of completed trades in the market.