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What is the Order Book

Order Book Trading Analysis

An order book can be used for quantifying the market’s intentions in the short-term.

“With the advent of electronic trading, markets have moved to a system in which liquidity provision has become decentralized...The rule-driven execution of orders in these limit order books and the extensive data that is available for order-driven markets makes them ideal candidates for stochastic modeling.” (2)

What is an Order Book?

An order book is a ledger showing the Depth of the Market (DoM) by consisting of a complete list of buying and selling orders for a particular financial-traded asset at a particular time. Every trading order in the book includes price and volume. Every exchange uses an order book to record, match, and execute trading orders.

Basic Features

(1) The book includes all buy and sell orders, plus the order history

(2) Order books improve market transparency as they can show market depth to every participant

(3 The order book is updated in real-time throughout the trading day

(4) The highest bid (buy) and the lowest ask (sell) are called the top of the book. The difference between these top bid/ask prices is the spread

(5) Every order that is not yet executed, can be canceled

(6) The book can be visualized via the market depth chart that contains all active bid/asks

(7) The order book includes all the ‘Makers’ and none of the ‘Takers’

Makers and Takers

□ Traders who place a Buy/Sell order that is instantly matched and filled are called as Takers. These orders do not go on the order book.

□ Traders who place a Buy/Sell order that cannot be matched and filled instantly at the current market are called Makers. These orders are included in the order book.