What is an Order Book in Trading?

An order book is a real-time list of buy and sell orders available for a particular security or derivative at different prices. It generally displays:

• Bid Price: Price at which buyers are willing to buy.
• Bid Quantity: Number of units buyers want to purchase.
• Ask Price: Price at which sellers are willing to sell.
• Ask Quantity: Number of units sellers want to sell.

Check out a specimen of an order book for a better understanding:

The difference between the “best bid” and “best ask” is the “bid-ask spread”.

How to Read an Order Book and Market Depth

To read an order book, traders examine the available quantities at different bid and ask prices. A large displayed quantity at a particular price can indicate substantial displayed liquidity. 

However, this does not guarantee that the orders will remain there or execute. That’s because orders can be cancelled or modified. Therefore, the order book only represents available orders at a particular point in time. They are not a guaranteed picture of future price direction.

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