An order book (see Image 1) is a combination of bids (green-coloured) and asks (red-coloured), that is, the price at which a trader is willing to buy an asset, and the price at which a trader is willing to sell an asset, correspondingly. It consists of two columns which are the amount of an asset to buy or sell and its price. It is organised by a price level and constantly updated in real time. The order book on Cryptology shows 15 best buy prices and 15 best sell prices.
How Does It Work?
The order book is considered as one of the trading instruments and fulfils two main functions.
- It allows a trader to evaluate the demand and supply of an asset at a certain price level
Realizing the demand and supply for a particular asset helps a trader set a better price of an order. When placing a market order, which is fulfilled immediately and not represented in the order book, a trader may use the indicators of the order book to determine the price to pay or sell for. When placing a limit order, which is represented in the order book, a trader may use the order book indicators to realize which part of an order may be filled at a certain price.
- It shows how much your an order is far from the best price
Knowing this may help a trader understand how much the market should change to fill the order.
There is another indicator in the order book graph, a bid-ask spread, which is the current difference between the best bid (buy) price and the best ask (sell) price of an asset. It shows how much a trader may lose when first buying and then selling the same asset.
All in all the order book helps a trader make more informed decisions based on the demand and supply of a cryptocurrency.
Order Book on Cryptology