# What Is an Order Book? Definition, How It Works, and Key Parts

![Order Book: An electronic list of buy and sell orders for a security or other instrument organized by price level.](https://www.investopedia.com/thmb/qqN5JH_UVIG_4r8inkKZ2wZKYVE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/order-book.asp-FINAL-c9f39afa60be4ab1bdf674787be2d4b5.png)

*Orders are organized by price, with the highest bid and lowest ask at the top. — Investopedia / Jiaqi Zhou*

> **Definition**
>
> Order books are used by almost every exchange to list the orders of stocks, bonds, currencies, and other assets.

## What Is an Order Book?

An order book lists the number of shares being bid on or offered at each price point or [market depth](https://www.investopedia.com/terms/m/marketdepth.asp). It also identifies the market participants behind the buy and sell orders although some choose to remain anonymous. These lists help traders and also improve market transparency because they provide valuable trading information.

### Key Takeaways

*   Order books are used by almost every exchange for various assets like stocks, bonds, currencies, and even cryptocurrencies.
*   These lists help improve market transparency.
*   They provide information on price, availability, depth of trade, and who initiates transactions.
*   There are three parts to an order book: buy orders, sell orders, and order history.

## Understanding Order Books

Order books are used by almost every exchange to list the orders for different assets like stocks, bonds, and currencies — even [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) like Bitcoin. These orders can be both manual or electronic. Although they generally contain the same information, the setup may be slightly different depending on the source. Buy and sell information may appear on the top and bottom, or on the left and right side of the screen.

An order book is dynamic, meaning it's constantly updated in real-time throughout the day. Exchanges such as [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp) refer to it as the "continuous book." Orders that specify [execution only](https://www.investopedia.com/terms/e/execution-only.asp) at market open or market close are maintained separately. These are known as the “opening (order) book” and “closing (order) book” respectively.

For instance, the opening and continuous books are consolidated at the Nasdaq market open to create a single opening price. The same happens when the market closes when the closing book and continuous book are consolidated to generate a single closing price.

## Reading an Order Book

There are typically three parts to an order book: buy [orders](https://www.investopedia.com/terms/o/order.asp), sell orders, and order history.

*   **Buy orders** contain buyer information including all the [bids](https://www.investopedia.com/terms/b/bidprice.asp) and the amount they wish to purchase.
*   **Sell orders** resemble buy orders, but instead include all the offers (or [asking prices](https://www.investopedia.com/terms/a/ask.asp)) or where people are willing to sell.
*   Market order **histories** show all the transactions that have taken place in the past.

The top of the book is where you'll find the highest bid and lowest ask prices. These point to the [predominant market and price](https://www.investopedia.com/terms/s/sweeptofillorder.asp) that are needed to get an order executed. The book is often accompanied by a [candlestick chart](https://www.investopedia.com/terms/c/candlestick.asp), which provides useful information about the current and past state of the market.

The order book helps traders make more informed trading decisions. They can see which [brokerages](https://www.investopedia.com/terms/b/brokerage-company.asp) are buying or selling stock and determine whether market action is being driven by [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp) or by institutions. The order book also shows order imbalances that may provide clues to a stock’s direction in the very short term.

For instance, a massive imbalance of buy orders versus sell orders may indicate a move higher in the stock due to buying pressure. Traders can also use the order book to help pinpoint a stock’s potential support and resistance levels. A cluster of large buy orders at a specific price may indicate a level of support, while an abundance of sell orders at or near one price may suggest an area of resistance.

## Special Considerations

Although the order book is meant to provide transparency to market participants, some details aren't included in the list. Among these are “[dark pools](https://www.investopedia.com/terms/d/dark-pool.asp).” These are batches of hidden orders maintained by large players who do not want their trading intentions known to others.

Without dark pools, exchanges would see significant price devaluation. When information about a big transaction by a large institution is made public before the trade is executed, it normally leads to a drop in the price of the security. But if information about the transaction is reported after it takes place, the impact on the market may be significantly lowered.

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](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) for the stock.

> **Important**
>
> The term order book can also be used to describe a log of orders a company receives from its customer base.

## Example of an Order Book

Order books continue to collate an increasing amount of information for traders for a fee. Nasdaq’s TotalView claims to provide more market information than any other book—displaying more than 20 times the [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) of its legacy [Level 2](https://www.investopedia.com/terms/l/level2.asp) market depth product.

While this extra information may not be very significant to the average investor, it may be useful to [day traders](https://www.investopedia.com/terms/d/daytrader.asp) and experienced market professionals who rely on the order book to make trading decisions.

![Robinhood's Level II data display](https://www.investopedia.com/thmb/4yerHNTIeEgUBkdxcsu3sY1r2Ps=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/RobinhoodLevel2-9fc2600afd384175b8b6a9af7e37df62.png)

**

> **Article Sources**
>
> 1.  Coinbase. "[What is an Order Book?](https://www.coinbase.com/it/learn/advanced-trading/what-is-an-order-book)"