Order Book: The Main Trading Tool

What Is a Ledger of Transactions?

The order book is a real-time snapshot of all active buy and sell orders for a specific trading pair. It displays the dynamics of supply and demand at that moment. If you want to understand how much buyers are willing to pay and how much sellers want to receive, the order book is the place where you will find this information. In simpler terms, it is the most important tool for understanding market sentiment and real trading opportunities.

How the Transaction Register Works in Practice

The list of orders in liquid markets is constantly changing. When a new buy or sell order is received, it immediately appears in the register. Once a transaction is matched, the corresponding orders automatically disappear from the list. It is not a static document – it is a dynamically functioning system that reflects the market reality of every moment.

When you place a buy order, it is secured based on the maximum amount you wish to spend. A sell order works the opposite way - it is based on the minimum amount you agree to receive. The order book simply organizes all those orders, thereby creating a visual market structure.

Main Parts Found in the Order Book

Buyer's Orders (Suggested Prices) These are the amounts that buyers are willing to pay. They are arranged from highest to lowest, so you can immediately see which buyers can agree to higher prices.

Seller Orders (Requested Prices) Sellers want to sell at the specified amounts. They are arranged from lowest to highest, displaying the most competitive offers first.

Price and Volume Each order has two main characteristics – the price and the quantity that the trader wishes to transfer.

Price Difference (Bid-Ask Spread) This is the distance between the highest buying price and the lowest selling price. A smaller difference indicates better liquidity and a tighter market structure.

Automatic Matching When buy and sell orders match at the price, the transaction is executed automatically. For example, if the buyer agrees to pay the price requested by the seller, the transaction is carried out immediately.

How to Understand Market Depth Through Charts

The depth chart is a graphical representation of the order book. On the horizontal axis, you will see prices, and on the vertical axis – the volume of buy and sell orders at each price. In the chart, you will immediately see two curves: one for buy orders ( typically green ) and the other for sell orders ( typically red ).

By analyzing these curves, traders can predict potential price movements. If a sudden increase in the resistance curve is observed, it may indicate a strong level that the price may not be able to break through directly.

Practical Application of Order Book in Trading

Support and Resistance Setting Large buy orders at a certain price can indicate strong support – this is the point at which the market is likely to stop falling. Similarly, large sell orders indicate resistance – the price at which the market may face difficulties in moving upward.

Liquidity Assessment If the order book is full of orders at different prices, it indicates good liquidity. This means you can buy or sell large volumes without drastic price changes. Conversely, a thin order book indicates lower liquidity and higher slippage risk.

Understanding Market Depth By looking at how many orders are at any price, you can anticipate where the market is most likely to be stopped or redirected. Large buy orders in the order book typically act as strong support.

Important Note: The Order Book May Be Misleading

It is important to understand that buy and sell walls are sometimes used to create a false impression of supply and demand. Traders can quickly create and cancel orders, thus opening up the possibility to manipulate the market image. Therefore, do not rely solely on the order book. If you want more accurate analysis, combining with other technical indicators is necessary.

Different Types of Orders

Market Orders These transactions are executed immediately at the best available price. The buyer does not consider – he agrees with what is currently on the market.

Limit Orders These allow you to set a specific price. The order will only be executed if the market reaches your specified level. This provides control, but there is no guarantee that the transaction will be matched.

Stop-Loss Orders These are conditional orders that are activated when the price falls below a specified level. They are a primary risk management tool.

Conclusion

The order book is an integral part of a trading tool, providing access to a real-time view of market supply and demand. Whether you want to understand support and resistance points or are simply using it for liquidity analysis, understanding this list enhances the quality of trading decisions. However, keep in mind that the order book is not infallible – it can be manipulated. By combining the order book with other technical analysis tools, you will reduce risk and make more informed decisions.