Quick definition Top-of-book (TOB) is the highest bid price and the lowest ask price currently available on a single venue. These are the prices at which market orders will execute. What it is Every order book has a top: the highest bid (the buy side) and the lowest ask (the sell side). The top-of-book represents the current market consensus of value and is the most visible price to market participants. If a venue shows bid 100.50 / ask 100.51, the top-of-book is these two prices. A market buy order executes at the best ask (100.51). A market sell order executes at the best bid (100.50). Why it matters The top-of-book is the price at which most trading occurs. It is the reference point for market participants and is quoted in real time by data providers and brokers. Traders watch the top-of-book to understand current liquidity and market direction. Top-of-Book versus Best Bid-Offer Best Bid-Offer (BBO) is the highest bid and lowest ask across all venues. Top-of-book is the highest bid and lowest ask on a single venue. In fragmented markets, they can differ; the best bid might be on NASDAQ while the best ask is on NYSE. Practical example You want to sell shares immediately. The top-of-book on NASDAQ shows a bid at 156.40. You hit that bid and sell at 156.40. At the same moment, the NYSE shows a higher bid at 156.42. If your order had been routed to NYSE instead, you would have received a better price. Best execution rules require routing to the venue with the BBO, not just any venue's top-of-book. Order book snapshot A top-of-book snapshot shows the price and quantity at the best bid and ask at a single moment in time. High-frequency traders use top-of-book snapshots to build models of price movement and liquidity. See also - Order Book - Best Bid-Offer (BBO) - Bid-Ask Spread - Market Order
