What is a stock order book & how does it work?

The order book helps traders make more informed trading decisions. They can see which brokerages are buying or selling stock and determine whether market action is being driven by retail investors or by institutions. The order book also shows order imbalances that may provide clues to a stock’s direction in the very short term.

What are order books?

Order books are used by almost every exchange to list the orders for different assets like stocks, bonds, and currencies — even cryptocurrencies like Bitcoin. These orders can be both manual or electronic. Although they generally contain the same information, the set up may be slightly different depending on the source.

How do traders use the order book?

Traders can also use the order book to help pinpoint a stock’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.

What is the difference between a bid and an order book?

For each security being traded, there is a buyer and a seller. The best price a buyer is willing to pay for a security is called the “bid,” and the best price the seller is willing to accept is called the “ask.” An order book is an electronic or written list of all the buy and sell orders investors have made for a particular security.