Crypto Trading Basics: How To Read An Exchange Order Book

how to read order book

Since the order is rather large compared to what is being offered , the orders at a lower bid cannot be filled until this order is satisfied – creating a buy wall. For the purposes of this explanation, we will be using the BTC/USD order book from one of the world’s largest cryptocurrency exchanges, Bitfinex. If you want to get a behind-the-scenes look at your favorite cryptocurrency’s price action, the order book will be your best friend. The multi-exchange trading application Atani, has a dedicated space to make visible the order book of the exchange and asset you want. This space is located at the bottom of our application, as shown in the following screenshot. Good risk management prevents losses, preserves capital, and maximizes profits.

how to read order book

Understanding the various types of orders and how they function is also an important part of being a responsible and successful trader. An order book is constantly updated in real-time throughout the day, which means they are dynamic and reflect the real-time intent of the market participants. Almost every exchange uses order books to list orders for various assets such as equities, bonds, currencies, and even cryptocurrencies such as Bitcoin.


The number in the buyer’s or seller’s columns represents the amount they are bidding or asking for and at what price. The order book is a list of the currently open buy and sell orders for an asset, organized by price. Note that most buy and sell walls appear in order books only for short periods. Additionally, the orders are not always completely filled — it is common to see buy and sell walls moving up or down, depending on the market’s movements.

But if information about the transaction is reported after it takes place, the impact on the market may be significantly lowered. Although the two sides display opposing information, the concepts of amount and price are relevant to both. Simply put, the amount and price per order display the total units of the cryptocurrency looking to be traded and at what price each unit is valued.

Level 1 Market Data

Sell orders contain seller information, including all offers, the amount they wish to sell. Market depth is the market’s ability to sustain relatively large LINK market orders without impacting the price of the security. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Investopedia does not include all offers available in the marketplace. Although the order book is meant to provide transparency to market participants, there are some details that aren’t included in the list.

It may be only a penny or two or profit, but market makers do that thousands of times per day. The lowest five to 15 prices where traders are willing to sell an asset and have placed an order to do so. In actively traded stocks, there are offers at every $0.01 above the current ask, and in actively traded futures there are offers at each tick above the current ask.

This allows an order book to be a perfect space to know the volume of operations and the level of prices that are handled in that market. Additionally, it also helps us to recognize the depth of the market and the number of operations in it. Moreover, the order book can help you to place orders that can make you a market maker. Market makers are those who place buying and selling orders at prices that are not used by other traders.

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You can use them to discover what other traders are doing, have a deeper understanding of what are the possible future market developments, and better set your trading strategies. This helps traders map upcoming and dying trends in a market to sharpen their investment strategies and improve their portfolio performance. However, even this data can be misrepresented to trick investors into believing a particular market sentiment exists.

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Knowing how to read an order book is an instrumental skill because it enables you to understand better what other traders are doing and the possible future behavior of the market. Ideally, a bid refers to the amount that a buyer is ready and willing to pay for an asset. Ask, on the other hand, is the maximum amount that a trader is ready and willing to buy an asset at. Most brokers give the buy side a green color and the sell side red color. The order book shows potential imbalances between the pending buy and sell orders, which can provide clues in what direction the price may move in the short term.

For example, if the number and amount of buy orders are significantly more than those of sell orders, it may hint at significant buying pressure which could push the price upwards. Sell orders in the exchange are ranked by ascending prices, so the cheapest sell price is always located at the top of the sell order book. Another benefit of limit order book analysis is how it can be used in tandem with on-chain data. For example, analysts can correlate its metrics with the funds flowing into and out from an exchange, and some interesting indicators can be highly constructive in understanding market behavior. With a trailing stop, the price that your share are sold at is determined by a specified amount below the market price, usually a percentage.

Getting into cryptocurrency trading for the first time can feel like drinking from a fire hose. There is an excessive amount of information you need to understand before making your first trade and not enough resources provide clear content that is easy to understand. There is no guarantee someone else will ever agree to sell at the available “limit prices” or “bids” so you don’t know GALA how long your order will “sit” before it’s ever taken. The asks are people offering their bitcoins for sale on the exchange and providing supply to fulfill the demand from buyers.

In this screenshot you can see how the lowest level of liquidity shows clear differences in both buying and selling the asset. And, as we go down, the liquidity increases because there are those who want to buy or sell at more attractive prices for their own trading strategies. An order book lists the number of shares being bid on or offered at each price point, or market depth. It also identifies the market participants behind the buy and sell orders, though some choose to remain anonymous. These lists help traders and also improve market transparency because they provide valuable trading information.

Important Terms

The data available from the order book gives you an “under-the-hood” look at a market’s structure and dynamics. Execution is the completion of an order to buy or sell a security in the market. Buy orders contain buyer information including all the bids, the amount they wish to purchase. In the example above, we can see a large order of 500.2 BTC units waiting to be filled with a bid of $6,263.

how to read order book

Buy orders include all bids, each of which consists of a price and a quantity that the buyer wishes to purchase. The Bid side of the order book displays all open buy orders among users of the exchange below the last traded price. Even though these techniques originated in the stock market, they are just as applicable to cryptocurrencies. A conditional order to buy or sell a large amount of assets in smaller predetermined quantities in order to… Historically, electronic exchanges have utilized centralized systems to match buy and sell orders with each other. This method remains the most robust way to facilitate electronic exchange.

How do you read an order book chart?

In any market, there are two extremes in price that traders call the “top of the order book”: the highest bid and the lowest ask. The highest bid (buy) is the highest price buyers are willing to pay for the asset. The lowest ask (sell) is the lowest price sellers are willing to accept for the asset.

By taking all of this information into account, traders can make wiser decisions about their trades and improve their chances of making a successful trade. In this article, we have looked at what an order book is and the key components that make it including the level 2 and time and sales. We have also explained how to use the tool well in the financial market.

First of all, if you look at the Atani order book you will see a series of green and red bars, which can be more or less large . needs to review the security of your connection before proceeding. After you sign up and connect your first exchange account, you’ll deploy an investment-maximizing strategy in as few as 5-minutes. An example order book on Coinbase Pro.When we place an order on the exchange, we have two options. Either we can place an open order on the exchange for someone else to take or we can take someone else’s open order that is already available on the exchange. An example would be if we placed an order to buy Bitcoin for 1 US Dollar.

The information may be changed without notice and is not guaranteed to be complete, accurate, correct or up-to-date. When orders are matched, they are taken off the order book and the market continues to fill the next buy and sell orders in line. For instance, the opening and continuous books are consolidated at the Nasdaq market open to create a single opening price.

Practically every exchange in the world, trading crypto or other assets, will have an order book for each of the markets available on the exchange. The order book is simply a list of pending buy and sell orders that traders are placing at an exchange for a specific asset. In other words, the order book records the interest of buyers and sellers in a particular asset. Level II market data provides the additional information needed to trade based on changes that occur in the bids and offers. This requires injecting massive amounts of liquidity into the market at a single price to manipulate traders into buying and selling at the asset’s walled-off market price.

  • For example, from this instrument we can obtain the minimum and maximum purchase price of an asset at a given time.
  • This is where people are buying or selling Bitcoin in exchange for USD.
  • Buy and sell information may show at the top and bottom of the screen or on the left and right sides.
  • In such a case, traders can set a certain price level at which they want to buy and sell the security.

For this reason, it is vital that every trader understands how this element works and how to read the data reflected in this instrument. This is especially vital for those starting out in the world of trading, as they often overlook the usefulness of the order book in carrying out their trading strategies. Binance, the largest crypto exchange by trading volume, has an intuitive order book where you can find selling and buying limit orders placed , the price, and the number of assets for each order.

For example, a large number of buy orders around a specific level might indicate a level ofsupport. At the same time, a large number of sell orders might indicate an area ofresistance. It’s always good practice to look for confirmation using other methods of analysis. The same widened spread can also indicate the risk perceived in relation to volatility, as market makers tend to hedge their positions to protect themselves against price swings. Level 2 is a trading service consisting of real-time access to the quotations of individual market makers registered in every NASDAQ listed security.

how to read order book

Order books are used by almost every exchange for various assets like stocks, bonds, currencies, and even cryptocurrencies. All in all, the order book gives a trader an opportunity to make more informed decisions based on the buy and sell interest of a particular cryptocurrency. When there is an abundance of buy orders at a specific price level, something known as a buy wall is formed. Level I market data includes basic information and is generally sufficient for most chart-based data systems. Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years.

An imbalance in buy or sell orders on an order book can show where the market might be headed. When there are lots of buy orders at a particular level, it could signal that there’s support at that level. On the other hand, if there are lots of sell orders, it might be an area of resistance.

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