What is a crypto order book and how do you read one?

A crypto order book is the live list of open buy and sell orders for a trading pair, such as BTC/USD, on an exchange. It shows how much people want to buy or sell at each price, so it gives a snapshot of supply and demand at that moment. Most centralized exchanges display one on their trading screen.

What is a crypto order book and how does it work?

The book has two sides. Bids are buy orders and asks are sell orders, and each shows a price and an amount. Orders that sit on the book waiting to be filled are usually limit orders, placed at a price the trader chose.

When a new order arrives that can match a resting one, the exchange's matching engine executes a trade. Coinbase Exchange says it matches orders by price-time priority, meaning the best price goes first and, at the same price, the earliest order goes first. Trades execute at the price of the order already resting on the book. Any unfilled part of a limit order stays open until it is filled or cancelled.

How do you read an order book?

Start in the middle. The highest bid and the lowest ask sit closest together, and the difference between them is the bid-ask spread. Australia's Moneysmart notes that trading straight away means you cross the spread, buying at the higher ask or selling at the lower bid. A narrow spread usually signals an actively traded market.

Next, look at depth, the total amount on offer at each price level. A deep book can absorb a large order without the price moving much. A thin book means a big market order may eat through several price levels, which causes slippage. Many exchanges also show a depth chart that plots these totals as two stepped curves.

Large clusters of orders at one price are often called buy walls or sell walls. Treat them with care. Orders can be cancelled at any time, and under US commodities law, placing bids or offers with the intent to cancel them before execution is a banned practice known as spoofing.

What is the difference between an order book and a trade book?

The order book shows orders that have not been filled yet. The trade history, sometimes called a trade book or recent trades, lists trades that have already happened, with price, size and time. One shows intentions, the other shows completed deals.

Not every venue has an order book. Uniswap describes itself as an automated market maker that uses liquidity pools instead of matching buyers and sellers, so you trade against a pool rather than another user's posted order. Our guide to decentralized exchanges covers that model.