Order Book

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.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  2. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  3. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  4. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  5. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
  6. Negative Carry

    A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
Trading Center