Order Book

AAA

DEFINITION of 'Order Book '

An electronic list of buy and sell orders for a specific security or financial instrument, organized by price level. The order book lists the number of shares being bid or offered at each price point, or market depth. It also identifies the market participants behind the buy and sell orders, although some choose to remain anonymous. The order book is dynamic and constantly updated in real time throughout the day. Exchanges such as Nasdaq refer to this order book as the “continuous book.” Orders that specify execution only at market open or market are maintained separately. These are known as the “opening (order) book” and “closing (order) book,” respectively.

INVESTOPEDIA EXPLAINS 'Order Book '

At market open on the Nasdaq, the opening book and continuous book are consolidated to create a single opening price. A similar process is followed at market close, when the closing book and continuous book are consolidated to generate a single closing price.

The order book information helps traders make better-informed trading decisions, since they can see which brokerages are buying or selling the stock and whether market action is being driven by retail investors or institutions. The order book also shows order imbalances, which may provide clues to the stock’s direction in the very short term. A massive imbalance of buy orders compared to sell orders, for instance, may indicate a move higher in the stock due to buying pressure.

The order book is also useful in pinpointing 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.

The order book does not show “dark pools,” which are batches of hidden orders maintained by large players who do not want their trading intentions known to other traders. The presence of dark pools reduces the utility of the order book to some extent, since there is no way of knowing whether the orders shown on the book are representative of true supply and demand for the stock.

Order books continue to collate an increasing amount of information that is available to traders for a fee. Nasdaq’s TotalView, for example, claims to provide more market information than any other book, such as displaying more than 20 times the liquidity of its legacy Level 2 market depth product. While this added information may not be of much significance to the average buy-and-hold investor, it may be useful to day traders and experienced market professionals for whom the order book is one of the most critical inputs in formulating trading decisions.

RELATED TERMS
  1. Market-On-Open Order (MOO)

    An order to buy or sell shares that specifically requests execution ...
  2. Opening Imbalance Only Order (OIO)

    Limit orders that provide liquidity during the opening cross ...
  3. Market Depth

    The market's ability to sustain relatively large market orders ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable ...
  5. Limit Order Book

    A record of unexecuted limit orders maintained by the specialist. ...
  6. Market-On-Close Order - MOC

    A non-limit (market) order executed as close to the end of the ...
RELATED FAQS
  1. How do investment banks help the economy?

    There are two broadly recognized functions of investment banks: capital market intermediation and trading. These are distinct ... Read Full Answer >>
  2. How does the invisible hand affect a capitalist economy?

    Taken broadly, there is no single more crucial effect on the capitalist economic system than what Adam Smith called the "invisible ... Read Full Answer >>
  3. Why are some shares priced in the hundreds or thousands of dollars, while other just ...

    The answer can be found in stock splits - or rather, a lack thereof. The vast majority of public companies opt to use stock ... Read Full Answer >>
  4. What's the smallest number of shares of stock that I can buy?

    The answer to this question is not as straightforward as it seems. Many people would say that the smallest number of shares ... Read Full Answer >>
  5. Does the closing price have to equal the last price traded?

    Logically and theoretically, the last price traded should be the same as the closing price of a stock. However, the way we ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Auction Method: How NYSE Stock Prices are Set

    The New York Stock Exchange (NYSE), sometimes referred to as “the big board,” is the oldest and largest stock exchange in the United States. NYSE is the place investors think of when ...
  2. Active Trading Fundamentals

    Which Order To Use? Stop-Loss Or Stop-Limit Orders

    Stop-loss and stop-limit orders can provide different types of protection for investors seeking to lock in profits or limit losses. Investors need to know how each type of order works to know ...
  3. Investing Basics

    The Closing Cross: How Nasdaq Stock Prices Are Set

    When you hear that your favorite stock closed at a record high price, have you ever considered how that price was reached? The calculation effort is far more complex than you might expect. To ...
  4. Investing Basics

    The Opening Cross: How Nasdaq Stock Prices Are Set

    The National Association of Securities Dealers Automated Quotations, commonly referred to as Nasdaq, is a computerized marketplace where stocks are traded from 9:30am to 4pm Eastern Standard ...
  5. Trading Strategies

    Introduction To Order Types

    A trade order is an instruction that is sent to a broker to enter or exit a position. Learn about the various types available to investors.
  6. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  7. Forex Education

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
  8. Active Trading

    Should You Be Afraid Of Dark Pool Liquidity?

    Don't fear the deep end. Dark pool liquidity can help drive down stock cost for everyday investors.
  9. Active Trading Fundamentals

    The Stop-Loss Order - Make Sure You Use It

    It's a simple but powerful tool to help you implement your stock-investment strategy. Find out how.
  10. Active Trading Fundamentals

    How To Avoid The 5 Most Dangerous Market Scenarios

    Recognizing the five most dangerous market scenarios can save a fortune in avoidable losses, setting the stage for long term success.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center