Order book

What an order book means

An order book is the live list of all unfilled buy and sell limit orders for an asset on an exchange or trading venue, arranged by price. Buy orders, called bids, sit on one side and sell orders, called asks or offers, on the other. When a buy order and a sell order agree on price, they match, trade, and leave the book. Orders that cannot match yet wait.

Order books are the core of how most exchanges work. Shares, futures, options and many crypto exchanges all use them. Each trading venue keeps its own book, so the same share listed on several venues can have several books, which are often combined by smart order routers.

The book is a window into supply and demand at a moment in time. It shows how much is available at each price level, how far apart the best bid and best ask are, and how deep the market is. Retail platforms often display a simplified version, sometimes called level 2 data or depth of market.

How it works

The best bid is the highest price any buyer is currently willing to pay, and the best ask is the lowest price any seller will accept. The gap between them is the spread. Orders are ranked by price first, and orders at the same price are usually ranked by time of arrival, known as price-time priority.

1. A limit order is submitted with a price and a size.
2. If it can match against orders on the opposite side, it trades immediately for as much as is available.
3. Any remainder joins the book at its price, where it waits in the queue.
4. A market order takes the best available prices, working through levels until it is filled.
5. Cancelled or expired orders leave the book without trading.

Because market orders consume liquidity, they can push the price through several levels. Limit orders that rest on the book add liquidity. This is why some venues charge different fees to those who take liquidity and those who provide it.

Not all CFD or forex brokers show a real exchange book. Their displayed depth may reflect aggregated quotes from liquidity providers or the broker's own pricing, so it is worth understanding what the data represents.

A worked example

The numbers are illustrative. A share has this simplified book:

• Asks: 400 at 20.06, 600 at 20.05, 300 at 20.04
• Bids: 500 at 20.02, 800 at 20.01, 700 at 20.00

The best ask is 20.04 and the best bid is 20.02, so the spread is 0.02.

A trader sends a market order to buy 500 shares.

• 300 shares fill at 20.04 = 6,012.00
• 200 shares fill at 20.05 = 4,010.00
• Total = 10,022.00, average price = 10,022 ÷ 500 = 20.044

The 300 shares at 20.04 are gone and 400 remain at 20.05. The best ask is now 20.05, so the visible price has risen. If the trader instead placed a limit order to buy at 20.03, it would join the bid side, ahead of the 500 at 20.02, and fill only if a seller came to that price.

Why it matters

The order book explains why prices move. Prices change because orders are filled and the best bid or ask is removed or replaced. It also shows liquidity: a book with deep size near the best prices can absorb large orders with little price impact, while a thin book cannot.

For traders, the book helps with choosing between market and limit orders, estimating slippage, and judging whether a price move rests on real volume or on a few small orders. It also exposes tactics such as large hidden orders, spoofing, which regulators prohibit, and the way resting orders can appear and vanish.

Regulators and venues set rules on how books are operated and how fairly orders are handled, which is part of market quality.

How to use it in practice

1. Look at the best bid and ask and the spread before you trade.
2. Check the size at the top few levels to estimate how much you can trade without moving the price.
3. Use limit orders when the book is thin or the spread is wide.
4. Remember that displayed orders can be cancelled at any time and hidden orders may not appear.
5. For CFDs, ask the broker what its depth display represents.
6. Watch how the book behaves around news, when depth often disappears.

Common mistakes and misconceptions

• Treating displayed size as certain. Orders can be cancelled before you reach them.
• Assuming the last traded price is the price you will get.
• Believing the book shows all liquidity. Hidden or iceberg orders and other venues may add more.
• Reading a large bid as proof the price will rise. It may be pulled.
• Assuming forex has one central book. It is a decentralised market with many separate pools.
• Using market orders in thin books without checking depth.

Risks and limitations

Order book data is a snapshot that changes every moment and is not a forecast. Retail views may be delayed, partial or aggregated. In fast markets depth can vanish quickly and slippage can be large. Leveraged trading carries a high risk of rapid loss.

How Brokeli looks at it

In broker research we check whether a platform offers depth of market or level 2 data, what it represents, and which fees apply to market data. This comes from published research snapshots and platform documentation. We explain the data as an educational tool and do not give trade signals based on it.