Order BookDOM
An order book is the live list of buy and sell limit orders waiting at each price on an exchange.
Behind every price on your screen is a queue of orders waiting to trade. Buyers line up at prices below the market, sellers at prices above, and the order book shows how many shares, contracts or coins wait at each level. Reading it tells you what trading right now will really cost, how much size the market can absorb, and where liquidity is thin. It also shows less than it seems: orders can be hidden, and displayed ones can vanish in an instant.
- Category
- Market Structure
- Reading time
- 6 min
- Also called
- Depth of market, Market depth, Level 2
- Updated
An order book in plain words
The order book has two sides. Bids are buy orders: “I will pay $49.99 for 2,200 shares.” Asks (or offers) are sell orders: “I will sell 2,000 shares at $50.01.” The highest bid and the lowest ask are the best prices, and the difference between them is the spread.1
Limit orders wait in the book; market orders trade against them. A market buy takes the cheapest asks first, and if it is bigger than what is offered at that price, the rest fills at the next prices.2
How to read an order book, step by step
Find the best bid and ask
The top of each side is the current market. The gap between them is the spread.
Read the size at each level
Each row shows a price and the total quantity waiting there. Compare it with the size you want to trade.
Look at depth
Add up several levels on each side. Deep books absorb large orders with little price change; thin books do not. See Liquidity.
Note large orders
Unusually large orders (“walls”) can slow price, but they can also be cancelled at any moment.
Remember queue priority
At the same price, orders placed earlier are usually filled first, so reaching your price does not guarantee a fill.2
Watch it change
The book updates constantly. A snapshot is far less useful than watching how orders appear, fill and disappear.
Worked examples
Example 1 — Reading the top of the book
DeepBids: 2,200 at $49.99, 2,800 at $49.98. Asks: 2,000 at $50.01, 3,000 at $50.02.
| Best bid / best ask | $49.99 / $50.01 |
| Spread | $0.02 |
| Mid price | $50.00 |
| Shares available within 2 cents above mid | 5,000 |
A buyer of up to 2,000 shares pays $50.01; up to 5,000 shares, at most $50.02. This is a deep, liquid book.
Example 2 — The same order in a thin book
ThinAsks: 300 at $50.20, 400 at $50.35, 500 at $50.60. You buy 1,000 at market.
| Fills | 300 × $50.20 + 400 × $50.35 + 300 × $50.60 |
| Average price | $50.38 |
| Cost above $50.00 mid | $380 |
The order walked through three levels. The book showed this cost before you traded. See Slippage.
Example 3 — Waiting in the queue
QueueYou place a buy limit for 500 shares at $49.98, behind 2,800 shares already waiting at that price. Sellers then trade 2,000 shares at $49.98 before the price rises.
| Shares ahead of you | 2,800 |
| Traded at your price | 2,000 |
| Your fill | 0 shares |
The price touched your limit, but the queue in front of you was not used up. That is queue priority in action.
A deep and a thin order book
Level 1 vs. Level 2 data
| Aspect | Level 1 | Level 2 (depth) |
|---|---|---|
| Shows | Best bid, best ask, last trade | Several price levels on each side |
| Size | At the best prices only | At each level |
| Useful for | Quick quotes | Judging depth and the cost of larger orders |
| Availability | Standard on most platforms | Often a paid add-on for stocks; standard on crypto exchanges |
Why traders read the order book
Estimating trading costs
Depth shows how much a market order will move the price before you send it. See Market Order.
Placing limit orders
Seeing the queue helps choose a limit price with a realistic chance of filling. See Limit Order.
Spotting thin markets
Gaps between levels warn that price can jump with little volume.
Order-flow analysis
Some short-term traders read changes in the book and the stream of trades. See Order Flow and Time and Sales.
Advantages and disadvantages
Advantages
- Shows real-time supply and demand at each price.
- Lets you estimate slippage before trading.
- Reveals liquidity that a price chart cannot.
Disadvantages
- Displayed orders can be cancelled instantly; depth can vanish when you need it.
- Hidden and iceberg orders mean the book shows only part of the liquidity.
- In stocks, each venue has its own book; one screen may not show them all.
- Large displayed orders can be used to mislead, which is illegal manipulation in regulated markets. See Spoofing, Layering and Wash Trading.
Going deeper
Read as far as you need. Each level builds on the one before it.
Only limit orders rest in the book
Beginner
Market orders execute immediately against the book and never appear in it. Everything you see waiting in the book is a limit order.
Hidden size and icebergs
Intermediate
Some orders show only part of their size; when that part fills, more appears. These iceberg orders, and fully hidden orders on some venues, mean the true depth can be larger than displayed. Repeated fills at one price without the displayed size shrinking can be a clue.
Fragmentation and imbalance
Advanced
US stocks trade on many exchanges and alternative venues, each with its own book; consolidated Level 2 combines them. Crypto assets trade on many exchanges with separate books and different depth.
Order-book imbalance — more size on one side than the other — is sometimes read as short-term pressure, but it is easily distorted by orders that are placed and cancelled. See Order Book Imbalance.
Common mistakes
Trusting walls
Large displayed orders can disappear just before price reaches them.
Ignoring depth when sizing
Check how many levels your order would consume before sending it at market.
Assuming a touch means a fill
With queue priority, your limit can be touched without filling.
Reading one venue as the whole market
Stocks and crypto trade on many venues; a single book is only part of the picture.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- An order book lists resting buy (bid) and sell (ask) limit orders at each price.
- The best bid and ask set the market; the gap between them is the spread.
- Depth shows how much a market order will move the price.
- At each price, earlier orders usually fill first.
- Displayed depth can be incomplete or disappear — treat it as a guide.
Frequently asked questions
What is the difference between the order book and the depth chart?
Are large orders in the book real?
Do I need Level 2 data?
Further learning
- Bid-Ask Spread
The gap at the top of the book.
- Liquidity
What depth in the book really means for you.
- Market Order
How market orders consume the book.
- Slippage
The cost of walking through several levels.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Bid Price/Ask Price (glossary) (opens in a new tab) Checked .
- Investor.gov (SEC). Understanding Order Types – Investor Bulletin (opens in a new tab) Checked .
Read more elsewhere
- Investopedia: Order Book (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.