What is 'Order Book '

An order book is an electronic list of buy and sell orders for a specific security or financial instrument, organized by price level. An 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.

BREAKING DOWN 'Order Book '

An order book is dynamic and constantly updated in real time throughout the day. Exchanges such as Nasdaq refer to it 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.

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 by 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, for example, may indicate a level of support, while an abundance of sell orders at or near one price may suggest an area of resistance.

Available Information on Order Books

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. Limit Order Book

    A limit order book is a record of unexecuted limit orders maintained ...
  2. Firm Order

    A firm order may be referred to as an order for a trade from ...
  3. Away From The Market

    Away from the market means the bid on a limit order is lower ...
  4. Above The Market

    Above the market refers to an order to buy or sell at a price ...
  5. Street Book

    A daily account of futures commission merchants and clearing ...
  6. Buy Limit Order

    A buy limit order is an order to purchase a security at or below ...
Related Articles
  1. Investing

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  2. Investing

    The Basics of Trading a Stock: Know Your Orders

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  3. Investing

    Narrow Your Range With Stop-Limit Orders

    With stop-limit orders, buyers protect themselves from prices too high for their tastes.
  4. Investing

    When Using a Money Order Makes Sense

    Money orders are usually the least expensive way to send "cleared" funds to pay a bill (or traffic ticket). Here's how they work and what to watch out for.
  5. Managing Wealth

    No, Comic Book Investing Won’t Fund Your Retirement

    Collecting comic books can be a terrific hobby, but it's unlikely they will cover your cost of your living after you retire. Here's why.
RELATED FAQS
  1. How Are Book Value and Intrinsic Value Different?

    Book value and intrinsic value are two ways to measure the value of a company. Find out which is known as the true value ... Read Answer >>
  2. What is the difference between a buy limit and a stop order?

    Learn the difference between buy limit orders and stop orders, including stop loss orders, and understand the risks of the ... Read Answer >>
  3. When is a buy limit order executed?

    Understand how buy limit orders work, and factors such as the bid-ask spread and market volatility that traders must consider ... Read Answer >>
  4. Stop-Loss Order

    A stop-loss order specifies that an investor wants to execute a trade for a given stock, but only if a specified price level ... Read Answer >>
Trading Center