What is Order book?
Buyurtmalar kitobi
In short
The list of all resting limit orders in a stock: how many shares are bid for, and offered for sale (ask), at each price.
A market order eats through the offers on the ask side one after another — that is how eager buyers push the price up.
Also known as: level 2, market depth, stakan
The order book (also called level 2 or market depth) is the table of every limit order currently resting in a stock. On one side are the buyers (bid): who is willing to buy how many shares at what price. On the other are the sellers (ask): who is willing to sell how many shares at what price. The gap between the highest bid and the lowest ask is the spread.
How it works
A limit order that cannot fill immediately is "written" into the book and waits in line. A market order eats through the resting offers one after another, starting from the best price. If there is not enough size at the best price, the rest fills at the next, worse levels — this is called slippage.
What it tells a trader
- Liquidity: how much size sits at each price level. In a "thick" book even a large order barely moves the price.
- Spread: a tight spread means cheaper entries and exits.
- Large orders: a big block resting at one price can act as temporary resistance or support.
Limitations
The book shows only visible orders. Large players split their size (iceberg orders) or route it to other venues, and visible orders can be cancelled within a second. So the book is a snapshot of the market right now, not a forecast.
Example
A hypothetical stock, part of the book:
- Ask: $50.02 — 300 shares, $50.03 — 500, $50.05 — 1,000
- Bid: $50.00 — 400 shares, $49.99 — 600, $49.97 — 1,200
Spread: $50.02 − $50.00 = $0.02.
You send a market order for 1,000 shares. It eats through the ask side:
- 300 × $50.02 = $15,006
- 500 × $50.03 = $25,015
- the remaining 200 × $50.05 = $10,010
Total $50,031, average price $50.031. The best ask on screen was $50.02 — a difference of $0.011 per share, $11 of slippage in total. A limit order at $50.02 would have avoided that cost, but only 300 shares would have filled right away.
Mistakes and tips
Avoid large market orders in illiquid stocks — check the book and use a limit order.
Don't blindly trust a big order in the book: it is often cancelled before price reaches it.
Around the open and close and during news the book thins out — spreads widen and slippage grows.
Frequently asked questions
- How do you read an order book?
- Each row shows a price and how many shares are waiting there. Bids (buyers) sit below the current price and asks (sellers) above it; the closer rows are the ones that will trade first.
- What is the difference between level 1 and level 2?
- Level 1 shows only the best bid and best ask. Level 2 shows orders at several price levels, i.e. the depth of the market.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
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