What Is an Order Book? How Does it Work?

Author: George Davis



Order books are very helpful for traders looking to improve their gains. Read this blog post to learn all you need to know about order books and how they work.



Whether you are a professional investor or a beginner, you need complete and accurate information before you start putting in your money. That is why order books are created to increase transparency and share real-time data with investors. In this blog post, we will be explaining “what is an order book” and also build your understanding of how it works.

What Is an Order Book?



The order book is an electronic list updated in real-time. This list shares information regarding the buying and selling of shares in nation-level stock markets, such as NASDAQ, S&P500, and DOW JONES. Order books help investors make investment decisions because they can see how many shares of a particular company were sold in an instant. Moreover, order books also share information about the market participant behind the buy-and-sell order. However, many market participants remain to stay anonymous.

Order books are used by every exchange for various assets, like bonds, marketable securities, currency, and even crypto. These lists help investors make wise decisions and enhance market transparency.

How Do Order Books Work?



Order books are linked to different stock exchanges, and when a buy-and-sell order takes place, the order book list is updated. Order books are dynamic, meaning they are continuously updated throughout the day as trade takes place. Formal exchanges like NASDAQ refer to order books as “continuous books,” because these lists are continuously tracking data and making them available for investors.

Trade orders that specify market opening and closing are executed separately on an order book. This separation is maintained to create a single market opening and closing price.

Order books generally have three parts to them, and if you understand its three components, you can make better investment decisions. These parts are:

1. Buy order:

These orders contain all the information related to the purchase of different shares. The main information includes bid, asking price, and volume of shares.

2. Sell orders:

These orders resemble buy orders but with roles reversed. For example, when a previous buyer becomes a seller, it is recorded in the “sell order” section.

3. Market history:

This contains all the market information of previous and current trade. This information helps buyers determine whether their company of interest has adequate trade activity or not.

Final Thoughts



The order book helps traders make informed decisions. They can remotely see all the stock market activity and determine whether the buy-and-sell orders are from retail or institutional buyers. Some traders choose to remain anonymous on the order book. Still, experienced investors can determine if a particular anonymous trader is a retail buyer or institutional from the volume of share purchased.

Stock Picks



1. Timken Steel Corporation (TMST)

2. Forward Air Corporation (FWRD)

3. Wolverine World Wide, Inc (WWW)

Find the top stock picks with guidance on when to sell, buy and further information by subscribing to the PT Premium Service in the Proficient Trader App