An Order Book is a list of buy and sell orders, organised by price level. This list helps improve market transparency as they provide information on price, availability, depth of trade. It is dynamic and are constantly updated in real-time throughout the day.
There are three parts to an order book: buy orders, sell orders, and order history:
- Buy orders indicates all the buying bids – the amount traders wish to purchase, and the price each bid is looking to buy at.
- Sell orders indicates all the selling bids – the amount traders wish to purchase, and the price each bid is looking to buy at. Sell orders resemble buy orders.
- Order history show all the transactions that have taken place in the past.
The order book helps traders make more informed trading decisions, it shows signs of order imbalances which may provide clues to a digital asset’s direction in the very short term.
For instance, a massive imbalance of buy orders versus sell orders may indicate a move higher in the digital asset due to buying pressure. Traders can also use the order book to help pinpoint a digital assets’s potential support and resistance levels. A cluster of large buy orders at a specific price may indicate a level of support, while an abundance of sell orders at or near one price may suggest an area of resistance.