Understanding the Concept of an Order Book
An order book can be described as a digital record of all buy and sell activities associated with an asset on a trading platform, for example, a cryptocurrency exchange.
An order book provides a detailed snapshot of an asset’s trading activities by documenting all purchase and sale orders.
Trading platforms utilizing electronic order books incorporate a matching engine that automatically filters and fulfills purchase and sale orders entirely or partially.
Insights into Asset Trading
An order book holds critical information about an asset.
It includes separate sections for buyers and sellers and has a bid-and-ask section. Here, “bids” denote buying orders, and “asks” refer to selling requests.
Bids are usually arranged on the left, and asks are on the right of the book. Each side contains various buying and selling prices from different traders.
Typically, bids are shown in green, and asks are displayed in red.
Visualizing Market Dynamics
Graphs like tables, line charts, bar charts, among other visualization methods, depict the interplay between buyers and sellers.
Additionally, Japanese candlesticks charting is commonly used alongside an order book to reveal the present and historical market conditions, thereby aiding traders in making well-informed trading decisions.
Usually, order books exclusively contain orders set to be fulfilled at specific prices the trader sets.
Order Types and Price Dynamics
These kinds of orders are referred to as limit orders.
On the other hand, orders set to be fulfilled at the existing market prices are known as market orders.
The highest bid prices and the lowest ask prices are shown at the top of the order book.
The gap between these two prices is known as the bid-ask spread, which signifies the strength of supply and demand.