Order Book

What Is an Order Book?

An order book is a continuously updated list of the buy and sell orders that investors have placed for a particular stock, bond, or other security on an exchange. Each entry shows a price and the quantity of shares or contracts that traders want to buy or sell at that price. Together, the list gives a snapshot of the supply and demand that exists at a given moment.

How It Works

Orders are sorted into two sides. The buy side, called the bids, is ranked from the highest price downward, because buyers willing to pay more are generally matched first. The sell side, called the asks or offers, is ranked from the lowest price upward, since sellers asking less are matched first. Orders at the same price are usually ranked by the time they were entered, so earlier orders are filled before later ones.

When a new order can be matched against an existing one, the exchange executes a trade and the matched quantity is removed from the book. An order that does not match immediately, such as a limit order priced away from the current market, stays in the book until it is filled, cancelled, or expires.

The gap between the highest bid and the lowest ask is the bid-ask spread. A narrow spread generally suggests active trading in a security.

Reading the Order Book

The order book shows market depth, which is the total volume available at different price levels. Deep books with large quantities near the current price can absorb larger trades with less price movement. Thin books may move more sharply when a sizable order arrives.

Order books have limits. Displayed orders can be cancelled or changed at any moment, so the visible list can shift quickly. Some large traders also use hidden or iceberg orders, which means the book does not show their full size.

Why It Matters to Investors

For individual investors, the order book helps explain why a trade fills at a particular price. A market order takes whatever prices are available on the opposite side, so a large market order in a thin book may execute across several price levels. Understanding the book can make execution quality easier to follow, though it does not predict where prices will go.