Quick definition An order book is the complete list of all buy and sell orders waiting to be executed, organised by price. The highest bids appear at the top of the buy side; the lowest asks appear at the top of the sell side. What it is The order book has two sides: bids (buy orders) and asks (sell orders). Each order specifies a price and a quantity. Orders are queued by price level, with the best prices at the top. Example: Bids Asks 100.50 / 500 100.51 / 600 100.49 / 200 100.52 / 400 100.48 / 150 100.53 / 300 When a new buy order arrives at 100.51, it executes immediately against the best ask at 100.51. When a new sell order arrives at 100.50, it executes against the best bid at 100.50. Why it matters The order book is the fundamental data structure of modern markets. It shows supply and demand at every price level. Traders analyse the order book to infer where the market will move and whether liquidity is available at various price levels. The order book is also the source of truth for execution. When you place an order, it is inserted into the order book at the appropriate price level and queued according to the matching rules of the venue. Order book depth Depth refers to the amount of liquidity available at each price level. A deep order book has many orders at multiple price levels. A thin order book has few orders and liquidity is concentrated at the best prices. Deeper order books typically mean tighter spreads and lower market impact. Practical example You are a day trader watching the order book for Apple. The bid is 150.00 and the ask is 150.05. You see that there are 100,000 shares offered at 150.05 but only 10,000 shares bid at 150.00. This imbalance suggests buyers are less aggressive than sellers. You expect the price to move down. Later, the order book shows 100,000 shares bid at 150.00 and only 10,000 shares asked at 150.05. Now buyers are aggressive. You expect the price to move up. Latency and order book updates Market participants receive order book updates from the venue in real time. The updates show new orders, cancellations, and executions. High-frequency traders invest in low-latency data feeds to see order book changes before slower competitors. See also - Limit Order - Top-of-Book - Depth-of-Book - Bid-Ask Spread
