What is a Book
A book is a record of all the positions held by a trader.
BREAKING DOWN Book
A book shows the total amount of long and short positions that the trader has undertaken. Traders maintain a book to facilitate trades for their customers and to profit from the spread between their bid and ask prices.
For example, a trader with a very simple book may hold two positions: one long position of XYZ stock worth $1,500 and a short position worth $1,700. Keeping an up-to-date book allows a trader to be aware of his positions and the risk exposure related to those positions. With a smart strategy and a decent amount of luck, a trader can profit on the spread. Bid and ask prices change constantly, based on market conditions and customer orders.
Many traders make a market in a particular stock or bond, which means that they facilitate transactions for customers. Traders use their firm's capital to maintain a book of long and short positions and provide a bid and ask price to investors. The bid represents the price that the trader pays for a security and the ask price is the sale price offered by the trader.
Other Ways the Term Book Is Used
The term book is used in many ways in a financial or business context. It can be used to define the book value of a business or a list of customers.
The term book also refers to book value, which is an accounting term used to describe a key measurement of company value. Book value is related to the balance sheet formula of assets – liabilities = equity. The term book value is another way of defining equity, and both terms refer to company assets minus liabilities owed by the firm.
Book value per common share of stock is a ratio that measures the amount of equity the company maintains per share of common stock. In theory, if the company sold all of its assets and paid off all of its liabilities, the amount remaining would be equity. If there is more equity available per common share, then each share is more valuable to a stockholder.
For many businesses, the order book represents customer orders that will be filled in future months. The dollar value of the order book is an indication of future sales and the growth prospects of the business.
A book can also refer to the customer list maintained by a particular salesperson or small business owner.