What is an order book?

Key Takeaways

in this video we're going to begin by discussing the concept of an order book suppose we have an instrument that trades in a marketplace this instrument can be a stock bond currency even a cryptocurrency anything like that the order book for that instrument is gonna be the set of all open orders understanding these outstanding orders is the most important part of trading many people start out by looking at historical data and charts they try to predict price and once they get into the nitty-gritty of actually submitting orders they run into trouble so that's why we're gonna start with the order book because it'll allow us to understand what we are doing when we begin actually submitting orders trying to take advantage of price movements order books can really be intimidating when looking at them for the first time they typically have a lot going on changing numbers flashing indicators it's really hard to keep up if you've never looked at one before so let's take a look I have a couple of examples here this first one is gonna be the order book for the eth BTC currency pair on the gtx exchange it's a crypto currency exchange you can see here the order book it's not moving as fast as it could be moving at the moment but you can notice that you see some flashes you see some movements going on it'll really speed up and go a lot faster than this so it's hard when you're trying to look at it and understand what exactly is going on when you see all this movement going so let's also take a look here this is another crypto currency exchange called bitter X and we see the order book here it's broken up into two pieces we can see on the Left we have bids and on the right we have asks so we have an example order book set up this order book is static we don't have any movement it's got round numbers so we can easily read it and understand what is going on on the vertical axis we have prices in the market place on this particular book we start at 85 and we move up to 115 on the horizontal axis we have the size the size is the number of units these units depend on what particular financial instrument we're dealing with these units could be shares dollars coins it can be any particular financial instrument that we want to deal with whatever the object is that's actually trading now together when we look at both the horizontal axis and the vertical axis we have the number of units at each price so we see at 85 we have a particular number of units at 86 we have a particular number of units and so on if we were talking stocks we would say at each price we have the many shares available on the order book if we were talking cryptocurrency we may say at each price we have this many coins available on the order book with respect to the order book the word available can mean one of two things these shares are the coins could be available for a buyer or the shares or coins could be available for a seller now that is why we have the two different colors the red and the green all of the prices in red in the corresponding units or quantity represent the number of coins or shares those units that are available for buyers so these are sellers in the marketplace making supply available for buyers to enter the market on the green side we have the number of bidders in the marketplace this represents the number of shares or coins those units that a seller could use to get out of the market because if the seller wants to get out they have to sell to somebody and that's what these particular orders are for so we have the sell side of the order book it's gonna be the top in the red and we have the buy side of the order book so the top says these are the sellers in the market so if you want to buy you gotta buy from them and on the flip side we have the green these are the buyers in the market so if you want to sell you have to sell to them and that's what the order book is it's at each price how much of that particular instrument is available at each price in terms of availability it can either be available to be bought or available to be sold so when we look at order books they're all going to be the same we're gonna have prices we're gonna have quantity or size they often call it the size and they're gonna be two groups there's gonna be the buy side of the order book and there's gonna be the sell side of the order book the buy side is gonna be the buyers in green and the sell side is gonna be the sellers in red no matter which order book you look at they're all gonna look this way now let's flip back to those two examples now on the GDX order book for ether bitcoin pair we can see if we look at the order book we can see that it has a sell side in red then we can see at the bottom it has a buy side in green we look on the bitter ex exchange we can see that the reason we have two parts on the order book here is the left side is the bids or the buyers the that's the buy side of the order book and on the right we have the Oscars or the asks and those are the sell-side but like I said any order book that we look at no matter what the particular financial instrument is there's gonna be a buy side there's gonna be a sell side now the first thing that we care about whenever we're gonna make a trade is are we on the buy side or we on the sell side and so we need to be thinking about the order book when we're thinking about which side we're gonna be on because we're gonna have to be targeting the other side if we're trying to sell then we're gonna need to be looking at the buyers and if we're trying to buy we're gonna need to be looking at the sellers with this working knowledge we are ready to provide a definition of an order book in order book is a collection of open buy side and open sell side orders for any given financial instrument hope this video was helpful please like the video subscribe and support this deep loser channel thank you