The order book is a list of the currently open buy and sell orders for an asset, organized by price.
The image above is a snapshot of the order book of the BTC/USDT pair on Binance Futures
. The orders color-coded in green show buy orders at specific price levels, while the orders in red show sell orders.
The system that matches buy orders with sell orders, called the matching engine, uses the order book to execute trades for participants of the exchange. The order matching system is the core of all electronic exchanges and determines the efficiency and robustness of the exchange. Order books generally contain the same information, but the layout can vary depending on the platform itself.
Historically, electronic exchanges have utilized centralized systems to match buy and sell orders with each other. This method remains the most robust way to facilitate electronic exchange.
On the other hand, blockchain technology
has introduced the possibility to create new types of exchanges that algorithmically match buy and sell orders using smart contracts
. This type of exchange is called a decentralized exchange (DEX)
. It facilitates trades without funds ever being custodied
by a central entity – albeit with some compromises in performance.
Order books are useful for traders because they help gauge the buyer and seller interest at specific price levels. This data can provide valuable information about potential support
An imbalance of orders on either the buy or the sell side of the order book may indicate the potential direction of the market. For example, a large number of buy orders around a specific level might indicate a level of support
. At the same time, a large number of sell orders might indicate an area of resistance
. These are, of course, not buy or sell signals by themselves. It’s always good practice to look for confirmation using other methods of analysis.
Some exchanges, called dark pools
, have order books that aren’t visible to the public.