Imagine auction halls for buying and selling old goods, where buyers offered different prices to buy an object, and finally, the item was purchased by the one who offered the best price. In financial markets, the order book can be considered an auction hall where buyers and sellers submit their bids, and at the end, the asset goes to the highest bidder. The order book, which we have fully explored in this article, is one of the main concepts in the digital currency market that you see in some trading platforms and digital currency exchanges.
What is an order book?
As we mentioned, digital currency market exchanges and, of course, many other financial market platforms compile a list of registered orders of buyers and sellers so that traders can better view the market conditions and the right price when placing an order. enter
To understand this issue, you should know that when you intend to make a transaction, the order you register is first registered in this book. Then, when the price reaches the Amount you want, or in other words, the corresponding trader is found (who has written the purchase or sale transaction at the right price for your order), your transaction will take place.
Of course, suppose you have previously registered transactions in different exchanges. In that case, you have probably come across options such as limit order, market order, OCO, Post Only, etc., each of which gives various commands to the exchange to execute your transactions after placing the order. In the following, we have examined the most important ones. Still, to extract the information from the list of demands and analyze them, it is necessary to familiarize yourself with each of these concepts, which we have described below.
- Count
In the Count column, you will find out how many orders at the desired price made up this volume. For example, in the row shown in the picture, seven charges have been registered for the importance of 1,400 Bitcoin units at the price of 23,540 Tether. - Amount
The order volume of traders is placed in the Amount column. For example, if you place an order for five units of Bitcoin, you will see the Amount of 5 in the Amount column or the Amount in the order row. - Total
As you can see in the picture, the Amount and Total in the first row are equal, but in the following rows, the Total value is obtained from the sum of the Amount or volumes of previous orders plus the importance of the current order. - Price
When you place an order, that order is placed at a specific price (usually set by you), which you can see in the Price column.
What are the components of the order book?
Since you may be trading in any exchange, you should know that order books are not all the same, and you may see them differently; However, identifying them is very simple and is usually specified in the section related to the term “Order Book”.
The order book consists of buyers’ and sellers’ orders. You will usually see buyer orders in green; this feature is sometimes seen in order prices or a moving bar that shows the volume of orders at that price. These features will be highlighted in red for sales orders.
In some exchanges, you can only view buy, sell, or both orders simultaneously (as shown in the image below), which is usually the case most of the time. If you want to see only buy orders, choose the middle option, and if you want to access only sell orders, you should select the third option.
The price display can be checked with different accuracies and decimals. For example, in the image below, we have chosen the number one. This means that the prices in the shopping list must be displayed without decimals, While if we choose 0.01, the digital currency price will be displayed up to two digits after the decimal.
When a trader intends to trade in short periods, in other words, he is a scalper who makes very short-term trades with low profit, he usually pays attention to the figures after the decimal point Because it is not going to open big businesses with lots of movements. You can personalize this section in the order book section of some exchanges.
Also, there is usually a price between the list of buy and sell orders in the order book, which is the current average price in the market, and people who intend to place an order can choose their bid price based on this price. The mentioned case is used for people who want to check the property price generally. Whereas, if a trader’s trading strategy is combined with a detailed examination of the order book, he should very carefully examine the prices in the buy and sell list.
Another thing that can be seen in the appearance of the order book is whether the list of buy and sell orders is vertical or horizontal. Sometimes, in some exchanges, the sales orders section is placed at the top, and the purchase orders section is placed at the bottom of the order book. Still, in some other exchanges, the buying and selling sections are placed horizontally and side by side.
List of purchase orders
As mentioned, the first orders from the list of purchase orders are selected for the transaction that has suggested higher prices. Consider the same old auction hall where ten people bid ten different prices to buy an item. The transaction will be done with the party willing to pay the highest price for the product in question.
In the digital currency market and the list of purchase orders, the same conditions are going on electronically. Of course, in the list of purchase orders, in addition to the suggested price, the volume of the transaction or the Amount of digital currency that the trader intends to buy is also specified.
Considering what has been said, you probably noticed that the orders in the buy list have registered a lower price than the price of the last transaction. Offers reported by buyers are also introduced as Bids in the shopping list. To complete a transaction, a seller must be willing to sell his digital currency at or below the price specified in the buy order.
Buy Wall
The term buy queue occurs when many traders intend to buy a stock at a specific price. Due to the existence of the allowed price range during the trading day, this happens a lot in financial markets where a large volume of orders are registered at a specific price.
Few traders can do this high volume, but with heavy orders, or too many traders, by placing orders at that price, cause a heavy book to be registered for a fee, in which case a Buy Wall is formed.
Again, considering that the best price in the list of buy orders is the highest price, with the existence of a buy wall that refers to an order or orders with a very high volume, there are situations where orders registered at a price lower than the buy wall will not be executed. Until many sellers sell the digital currency at the desired price in the buy wall orders it is time to place orders at a lower price, which, of course will take some time, and we will see the formation of a support level in the price chart.
You should pay attention to the Amount column to identify the orders that may cause the purchase wall. If you see a large volume in this column, you should pay attention to it when choosing the price to place an order, and always remember that by entering a price lower than this price, you may have to wait a long time for your transaction to be completed.
As you can see in the image below, by checking the transaction size column, we see that the average transaction size is from 1 to 10 units, While at one time and another price, an order or orders of size 124.467 for 23.421 have been registered, which can cause a purchase wall, and when placing an order, you should pay attention to its cost; Of course, if the seller or sellers are willing to sell this Amount of assets at the mentioned price, the transaction will be done and there will not be much delay.
List of sales orders
When you intend to buy a property, you pay attention to the price that the sellers are considering, and, obviously, look for the lowest price to buy it. The conditions are the same in exchanges, and the priority for transactions in the list of sales orders is with the order that has offered the lowest price. So with that being said, the charges we see on the sell list are listed at prices higher than the last trade.
Sell Wall
To detect the formation of a sales wall with the help of the list of sales orders in the order book, one should pay attention to the transaction volume column, which is indicated by titles such as Amount or Size. If you encounter a very high volume of sell orders at different prices and do not see such a demand at this price on the side of buy orders, you can assume that a sales wall will be formed.
Upon reaching the sell wall order, orders with a higher price will not be placed until the entire order volume is placed at the cell wall. With the formation of a selling wall in the order book, we will witness the creation of a resistance level in the price chart. Therefore, to place an order and enter the price, you should consider high-volume orders.
Applications of the order book
- One of the applications of the order book that can be used in transactions is that by checking it, you will be able to recognize the continuation of the process. You must also know that the amount of supply and demand in the market determines the trend. When the need for an asset exceeds the store, the trend is bullish, and when the supply exceeds the order, the trend is bearish.
Sometimes, despite the large number of buyers or sellers in a price range, the candlestick has turned red or negative in the price chart. In the buy and sell orders list, the purchase volume is less than the sales volume. For example, there are 100 units of goods for sale, and despite several buyers, not all units have been sold. - In such a situation, it can be said that the power of sellers is greater than that of buyers; Therefore, there is a possibility of a price drop. These tips and these tips help you make more successful trades.
- Another use of the order book is to optimize the entry and exit points and the profit and loss limits. For this, by checking the list of orders, you will find out which side of the market is strong, and as a result, you will enter the transaction at the right time.
Also, when choosing your profit limit and loss limit, you can check the volume of transactions in that price range to ensure that you have selected the profit limit and loss limit correctly. For example, with a heavy book at a price close to the loss limit, stop You will not be activated. - Order Book will give the trader a more comprehensive view, and by checking the orders, the trader can extract the depth of the market, the price range, and other information.
Making changes in the Order Book
One of the most obvious things a trader can do, which we have mentioned many times throughout the article, is to place an order.
Another operation that a trader can perform is to delete an order that he had previously registered. If you have traded in exchanges, you must have noticed that after placing an order, you can see it in your trading panel and the section of orders you set yourself. You can see the different features of the order in the row related to your order. Usually, the last option is to cancel the order before completing the transaction.
Another change that can be made is that the trader changes the volume or price of his order, in which case, depending on the exchange where you operate, your order rank may vary, which should also be considered.
Order types
- Market order
One of the methods of placing orders in digital currency exchanges is the market order method, in which the trader does not determine the purchase or sale price. Still, the deal buys or sells the asset for the trader at the prices available in the business. In this method, the trader determines only the volume of the order.
A point that even novice traders may overlook is that, especially when a trader is placing a high-volume trade, not all trade volume may be executed at the same price. In such a situation, the trader will lose if subsequent counter orders (to complete the trade) are placed at an inappropriate price.
For example, suppose you plan to buy ten units of Bitcoin. Since the spot price was $15,000, you would think that the entire ten bitcoins would be sold at $15,000, but the exchange might sell 1 unit or even less at $15,000 and the rest of the bitcoins at different prices. Buy higher for you. This will usually work against you, especially when you are not a holder.
Of course, some options allow setting conditions, such as making a transaction at only one price or canceling the transaction if the entire order is not fulfilled in the exchanges, which we will also describe below. - Limit Order
In the limit order method, you, as a trader, can enter the transaction’s desired price and volume. In this method, if there is a better price than your offer in the order book, your marketing will be done at a better price. For example, if you have registered an order to buy Bitcoin at the expense of 15 thousand dollars and there is one order corresponding to 14,800 dollars in the order book, your transaction will be done at a lower price. - Stop
In the stop-limit order registration method, you can register two types of market or limit orders. Still, the difference between the stop method and the previous two methods is that you set a condition for activating your order in this method. For example, your order can be activated when the price of Bitcoin reaches $14,800. Note that when the order is activated, your order will be placed in the order book and done in one of the ways you chose (Limit/Market). - TIF (Time in Force)
In addition to the abovementioned methods, you can register your order with more details. For example, you can instruct the exchange to complete the transaction for you only if it is possible at the quoted price. We have further explained these concepts. - GTC (Good Till Cancel)
In this case, your order will be open until the entire transaction volume is completed unless you cancel it yourself; suppose you have registered the intention to buy five units of Bitcoin at the price of 20 thousand dollars. In this case, if at first two teams of bitcoins are done for you at the expense of 20 thousand dollars, now you will have an order with the volume of 3 bitcoins at the cost of 20 thousand dollars, and when the price reaches 20 thousand dollars, the rest of your order will be completed. - ICO (Immediate Or Cancel)
In this method, unlike the previous process (GTC), if you have registered an order for five units of Bitcoin for 20 thousand dollars and a part of your order is traded and bought for you (of course, you may be lucky and your entire transaction will be completed in the first step is done), the rest of the order (remaining three bitcoins) is automatically canceled by the exchange.
Simply put, only a portion of the order volume is traded the first time the price reaches the desired Amount, and the rest of the order is deleted. - FOK
In FOK mode, your transaction will be done only when the exchange can buy or sell the entire order volume for you in one step. For example, if you intend to buy five units of Bitcoin at 20,000 dollars, the transaction will be completed only if the exchange can buy or sell all five branches of Bitcoin at the specified price (better price) for you at once. - Post only
If you choose the Post Only mode in your order and Tradery registers your corresponding order at the same time, your transaction will be done without your orders being placed in the order book; if you do not activate this mode and, for example, you have chosen the limit order method, even if there is a trader in front of you, both of your orders must be placed in the order book first, and then the transaction is done.
The difference between these two states defines you as a maker or a ticker, and these things can be effective in the amount of your paid fee. Suppose you register a Post Only order, and your corresponding person has written the opposite order simultaneously. In that case, your transaction will be done at a higher speed Because it is not included in the order book.
Of course, you should note that you will be recognized as a ticker and paid more; if you choose the Limit mode, even if there is an opposite trader, the order of both of you will be placed in the list of demands or Order Book. You will be known as a market maker, so you will pay a lower fee.
Description of Limit Order list
In general, you can see the list of orders of buyers and sellers in two separate sections in the order book. Each currency or asset pair has an order book that contains traders’ buy and sell orders for the same asset.
According to the exchange or the platform you are using, the names of the different Order Book sections may differ slightly. Still, the first thing you should consider when checking the Order Book is whether the order is placed in the buy or sell orders section.
Bid orders are reserved for those traders who have registered an asset purchase order by entering the desired price. For example, if a trader wants to buy two units of Bitcoin at 23 thousand dollars, his order will be placed in the Buy or Bid section.
On the other hand, some people intend to sell their assets; in such a situation, the trader registers his sell order, and the exchange places it in the Ask or sell orders section. One thing to note when checking the order book, especially for trading or setting profit and loss limits, is that, for example, all the sell orders you see in the sell list are not accurate sell orders but maybe trade orders that He intends to close his repurchase transaction and has registered a sell order for this purpose.
The price in limit and limited orders includes the best price to buy, i.e., the lowest selling price, and the best price to sell, i.e., the highest buying price. Note that these prices are dynamic in the order book; these numbers and figures are constantly updated by making transactions and sending new orders.
When you or any other trader registers an order, it is done in two steps. The first stage is when you register your order; the second is when the exchange receives your order and records it in the list of demands. The time seen in the order book is related to the registration of the order by the exchange, not the trader.
- Tick Size
Tick Size shows you a limit or condition for choosing the price when placing an order. For example, if the tick size is 1, you can register 20, 21, 100, or any other whole amount in your rankings, but in this case, it is impossible to note 100.5. The price should be rand in this example.
Also, if the tick size is up to two-tenths of a decimal, you can enter prices with an accuracy of two-tenths of a decimal in your orders. For example, 100.05 is one of the allowed prices for this mode, but again, you cannot enter the price of 500.009, which has more decimals, as the price in your orders. - Lot Size
Lot size refers to the volume of your orders, and this Amount should always be entered in your orders according to the lot size amount. If the lot size is 5, you can choose the size of your orders in multiples of 5 (for example, 20, 50, 30, etc.), but for example, a number like 49 is not a multiple of 5, and it is not possible to choose it for this mode.
Prioritizing orders in the Order Book
The exchange (as well as many trading platforms) always tries to provide you with the best conditions for trading in the market. When you are a buyer, the best situation for you will be to buy the property you want at a lower price. For this reason, in the order book, sales orders are usually ranked from the lowest price sellers offer. This way, you can find the best price for your desired property.
This mode also exists for registering sales orders. For example, suppose you intend to sell your digital currency; by checking the list of buyers showing their bid prices, you will find out what Amount the buyer traders are willing to pay for the desired digital currency. These prices are usually ranked from the highest to the lowest. It has been that the more you can sell your digital money at a higher price, the more profit you will make.
Finally, it should be noted that sometimes this ranking is not done in the order that was said Because, in some cases, two orders may be sent entirely at the same time, in which case, the charges are placed in the order book based on time priority and not based on price.
Despite all the commonalities among the order books, some exchanges have provided the possibility of personalizing the order list for their users, where users can view the orders of traders in the same order and prioritization as they consider, according to their strategy and needs. do
The process of making a transaction in the order book
According to the price considered for the order, your order can be placed in the passive or aggressive category, which we have examined below.
Passive orders
When you register an order in the exchange that requires waiting to reach that price and then making the transaction, it is said that this order is passive. For example, if you choose a price in your purchase order that does not have a corresponding or lower price in the list of sales orders, this order is passive; for the transaction to be carried out, this order is fixed in the order book, and The wait will remain.
This condition is also proper for the sales order. In other words, the demand remains fixed and passive when a sales order is registered with a price that there is no order with a corresponding price or with a higher price in the shopping list.
Aggressive orders
A price gap exists among the first prices in the buy and sell list. When the price recorded in the order is selected from the range of the price gap, it is said that this order is aggressive Because it will be done quickly, and there is no need to wait for this transaction.
Single-step and multi-step transactions
Depending on the orders you place and whether there is enough volume on the other side to offer, traders’ orders may be executed simultaneously and in one step or several steps.
One step transactions
In transactions carried out in one step, the counterparty has sufficient volume to present and complete the transaction. To understand this, suppose you intend to buy two units of Bitcoin at 15 thousand dollars. On the other hand, in the list of custom sales orders, it can be seen that he is willing to sell four units of Bitcoin for 15 thousand dollars.
In such a case, since the price and volume of your offer are in harmony with the order in the sales list, your transaction will be done quickly and in one step. In other words, you intend to buy an amount of an asset that is a seller or sellers who are willing to sell that asset at the same price and even in a higher volume (if needed).
After your transaction, the order book will change. Because you intended to buy two units of Bitcoin, your transaction is completed. The order will be removed from the list, but on the seller’s side, the order to sell four units of Bitcoin was involved in this transaction, So there are still two unsold units at $15k that will be updated on the order list. The completed transaction is also recorded in a section called Trade Feed, which is dedicated to completed transactions.
In the end, it should be noted that the settings for the transaction to be carried out in one step or multiple steps can be included when placing the order. We have fully explained these issues in the section related to the types of orders. Understanding these issues is essential because, according to the kind of order he registers, the trader should know that when the order is not executed in one step, the transaction price will be an average of the transactions conducted at different prices.
Changing the price gapConsider a situation where the bid-ask spread is $4, and the bid-ask spread changes after a few trades. It is important to note that the order book is dynamic; That is, it is constantly changing. In the following, we have examined part of changing the price gap in the list of orders. For this purpose, we have given a list of demands as an example and provided explanations based on these figures.
According to what we see in the table (list of buy and sell orders), the price gap between the best price of buy orders (990) and the best price among sell orders (1000) is $10. If a buyer offers a higher price or a seller provides the lowest price, that order will be placed at the top of the list, and the price gap will change.
Suppose the buyer registers a purchase order of 30 units of the desired asset for $1002. We have described the process of making transactions and forming a new price chat in the table below.
Transactions must be done in several stages. In the first stage, five units are purchased at the price of $1000; in the second stage, ten units are purchased at the cost of $1001; in the third stage, ten teams are purchased at the price of $1002, but the exchange does not have the right to continue the purchase with the following order, which is priced at $1003. has proposed to match Because the purchase transaction is supposed to be done at the price recorded in the order (1002) or lower prices.
Since the purchase order was registered with a volume of 30 units, the order of 5 teams at 1002 dollars has not been completed yet, and there is no suitable order in the sales orders section to complete the transaction. Therefore, the order book list changes.
Now, sellers prefer to sell their property to the buyer who has offered a better price, So the price gap changes from $10 to $2 (1002 – 1000).
As you can see in the article, different concepts besides the types of analysis can affect your experience in the cryptocurrency market. Order books in the digital currency market are used more than other financial needs. Still, you must have enough information and knowledge in this field to understand and use the information that can be extracted.
It should be noted that the best and fastest way to reach this level of knowledge and skill is to participate in a digital currency training course available to everyone in person and online today.
Final word
Along with technical analysis and fundamental analysis, traders also use table reading. In fact, when making the transaction, by checking the list of orders and the market situation, they can realize that the market power is more on the buyers’ or the sellers’ side. Based on that, they can finalize their decision.
Using the order list, more specialized in the digital currency market, helps the trader monitor the market accurately and have more successful traders.
In the meantime, you should note that you will not analyze using the order book and make transactions based on it. Still, it would be best to study the desired asset differently and get confirmation to enter or exit the trade and find Market power. Use the list of buy and sell orders.
In this article, we tried to fully describe the order book and its surrounding materials so that you can make better deals with the help of the information that can be extracted from the order lists.