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What is an order book?

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Used in a sentence

The Daily Ledger · Markets

The trading course opened with a screenshot of the order book, insisting that everything else made sense only after this one screen did.

The reader highlighted one word mid-article. Clicked made the trading term “order book” easy to understand:

Explained in three depths

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Overview

An order book is the live list of every standing order to buy or sell something, sorted by price. Buy orders stack below the current price, sell orders stack above, and each shows how much is wanted at that number. The highest waiting buyer and the lowest waiting seller sit at the top, and the gap between them is the bid-ask spread. Prices are not set anywhere else: a trade simply happens whenever someone crosses that gap.
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Overview

An order book is the market with its cards face up: a live list of every buyer, every seller, their prices and their sizes. No committee sets the price. The number on the screen is just the last spot where a buyer and a seller ran out of stubbornness. Everything you need to know about "why did it move" starts with this list. 😎

A quick take — often all you need.

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Detail

An order book answers a question most people never think to ask: where does the price actually come from? Every market with a book runs the same way. People willing to buy post the price they will pay and the amount they want, and those bids stack up from the highest down. People willing to sell post their price and amount, and those asks stack from the lowest up. The top of each stack faces the other across a gap, which is the bid-ask spread. The last price at which someone crossed it is the price on the screen. Nothing else decides it. The book also shows depth: how much quantity waits at each level. A large order discovers depth the hard way. The order takes everything offered at the best price, then everything at the next price up, so the average it pays climbs level by level. That climbing average is slippage. Getting into the book takes a limit order, an order with a named price that waits its turn. A market order never appears in the book. Such an order arrives, takes the best prices available until it is filled, and is gone. One caution keeps the picture honest. The book shows standing offers, not promises. Orders are cancelled constantly, and a level that looks solid can be gone the moment before you reach it.
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Detail

An order book is the market's guest list, and reading one kills several myths at once. There's a column of buyers, stacked by how much they'll pay, and a column of sellers, stacked by how little they'll accept. The price you see quoted is nothing grander than where those columns last collided. Myth two: "there's always a buyer". Look at the column. The buyers are specific people wanting specific amounts at specific numbers, and when they're gone, they're gone. Myth three: the price on screen is the price you'll get. Only for a small order. A big one chews through the front row, then the next, paying more with every bite. The book explains slippage without needing a diagram. Your own way in is a limit order: name your price, join the queue, wait. The alternative, a market order, doesn't queue at all. A market order walks straight in and takes the best prices on offer. One warning before you trust the wall of orders in front of you: none of it is binding. Orders cancel in milliseconds, and the thick support that made you brave can evaporate before your trade arrives. The book shows moods, not vows. 😎

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Analogy

An order book works like the notice board of a neighbourhood buy-and-sell group, for one popular item. Down one side, wanted posts: buyer at 220, buyer at 210, buyer at 190, each stating how many they'll take. Down the other, listings: seller at 240, seller at 255, seller at 280. No moderator runs the board or rules on what the item is worth. The moment a buyer pays 240, or a seller accepts 220, a deal is done, and that number becomes the going rate. The stacks of posts show how much interest waits at every number. A post comes down whenever its owner has second thoughts.
Deepest level reached.
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Analogy

An order book is the trading site in a video game, the place where players sell loot to each other. One table lists every item up for sale, cheapest first. Another lists standing buy offers, highest first. Nobody at the game studio decides what a rare sword costs. Impatient players pay the cheapest listing, patient ones post an offer and log off. The "market price" everyone quotes is just wherever the two tables last touched. Watch it for a week and you learn the whole subject. Undercutting, sudden walls of sell orders, and listings that vanish the second you finally decide to buy. 😎
Deepest level reached.

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AI explanations may contain errors · Not professional advice

Formal definition — The same term, explained the usual way

An order book is the real-time record maintained by an exchange or trading venue of all outstanding limit orders for an instrument, organized by price level with aggregate quantity at each. The highest bid and lowest ask constitute the top of book and define the bid-ask spread; cumulative quantity across levels constitutes market depth. Incoming marketable orders execute against resting orders under price-time priority, consuming depth and moving the reference price. The book displays revocable intentions rather than commitments, as resting orders may be modified or cancelled before execution, a property exploited in manipulative practices such as spoofing.

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