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What Is an Order Book?

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What Is an Order Book?
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The term order book refers to an electronic list of buy and sell orders for a specific trading pair (e.g. BTC/USDT) organized by price level.

What Is an Order Book?

Simply put, it is a live view of the price traders are willing to buy or sell an asset. On the order book, anyone can create an order which will be automatically added to the waiting list or filled instantly, subject to the current market price.

There are three important features of an Order book

Using the image from the VIBRA order book showing BTC/USDT trading pair

Buy market order on Vibra
  1. The Green Side (Bid/buy): A list of traders who want to buy BTC with USDT. They have created bidding price limits and their orders will be filled when the price level aligns with their bid.
  2. The Red Side (Ask/sell): A list of traders who want to sell BTC asking for USDT.
  3. The Last Traded Price: The price of the asset displayed boldly between the buyer’s side and the seller’s side.

Reading the Order Book

Newbies in crypto may find the order book quite complex and it is important to understand some features and how to apply them in decision-making.

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Content of an Order Book

  • Sell Order: Includes sellers’ ask price and the number of coins they wish to sell. These orders are usually at the top and in red colour.
  • Buy Order: Usually at the bottom of the order book and in green colour, containing the bidding prices and the number of assets the buyers are willing to buy.
  • Open Orders: All opened trades that are yet to be filled are shown here. You can also cancel unfilled orders here.
  • Order History: This shows all the traders’ transactions that have been filled in the past.
  • Market: This feature allows you to fill out the order form and take the trade at the current market price. The market order is automatically populated at the best current trading price.
  • Funds: This shows the available asset a trader has in the wallet that can be traded on the Order book.
  • Limit: Usually called a limit order. It allows you to trade at your desired price. Traders can use this feature to set their own buy or sell prices.
  • Price: The bid/ask price chosen by the buyers or sellers for a specific quantity of assets.
  • Amount: The amount column shows the total number of the specific crypto assets the sellers or buyers are willing to trade at the indicated price. The amount corresponding to each price fluctuates as more traders add or remove orders from a specific price.

Visual demonstration

An order book often has a table of numbers with prices and amounts from two sides and these numbers often fluctuate to show the market activities. The order book also includes a graphic depiction to convey the link between customers and suppliers. It takes the shape of a line graph. A trader can quickly develop a general view of market demand and supply in this way.

Buy order

The image above shows the buyers at the bottom and the sellers at the top, with the last traded price of $20,696 USDT at the time of this screenshot.

Explanation:

  • The topmost order on the buyers’ side shows that some traders want to purchase a total of 1.64 units of BTC when the price of BTC/USDT is at $20,694.
  • On the sellers’ side, the lowest order shows that a total of 3.14 units are up for sale at the price of 20,698.

These are waiting orders set by traders and they can be edited and modified by the buyers before orders are filled automatically.

NOTE: Traders can choose to bid instantly to purchase or sell an asset on the Order book when the price limit set is the current trading price.

Advantages

  1. Market View:ย An order book dynamically reflects the buy and sell prices in real-time. It allows traders to make informed decisions. Moreover, it helps market participants understand the market trends and dynamics over time. Market sentiment can also be analysed from the demand and supply activities on the order book.
  2. Flexibility of Trading:ย Traders can set any price order that can be fulfilled automatically at a later time or date. This means that you can create an order in anticipation of a price rise or fall in the future.
  3. FOMO support:ย Having the Fear Of Missing Out on good prices? You can simply set your order to a future price limit. The order book helps even new traders without market analysis skill to make a win of the market price movement. If you think BTC may fall lower than its current price, simply place a bid on your predicted price. With that, you are assured of sleeping well at night.

Conclusion

In conclusion, the order book offers a trader the chance to clearly assess the market momentum and make decisions.

Traders can determine the marketโ€™s health over time by looking at the order book and also predict how strong the bulls or bears are based on the market depth.

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