What Is An Order Book?

An order book is an electronic documentation of an asset’s buy and sell activity on a trading platform such as a cryptocurrency exchange. Generally, an order book shows a sleek view of a particular asset by recording buy and sell orders. Platforms using electronic order books employ a matching engine to automatically sift and fulfill buy and sell orders, whether wholly or partially.

An order book comprises different key information regarding an asset. First, it has dedicated sections for buyers and sellers. Next, there is a bid and ask section. Here, "asks" represent sell requests while "bids" indicate buy orders.

Bids are placed on the left while asks occupy the right side of the book. Both sides have buy and sell prices from various traders. Bids are usually represented by a green color while asks are colored red.

Tables, line charts, bar charts and other visualization methods display the interaction between buyers and sellers. Also, Japanese candlesticks charting accompanies an order book to show the current and past status of the market and to help traders make informed trading decisions. In most cases, order books only contain orders set to be fulfilled using a trader’s specific prices.

These types of orders are known as limit orders. Orders placed to be fulfilled using the current market prices are called market orders. The highest bid prices and lowest ask prices appear at the top of the order book. The difference between these two prices is referred to as the bid-ask spread. It indicates the supply and demand strength.