The order book: what is visible in it and what is not

The order book is a table of buy and sell orders sorted by price. Of all the screens on an exchange it is the most informative and the most overrated.

How it is built

Sell orders on top, buy orders below, a gap between them.

The closer a price is to the current one, the higher its row. The volume in each row is the quantity someone is ready to buy or sell at that price.

What follows from it

The width of the spread is a direct estimate of what entering and exiting costs. The density of the book estimates how large an order can be filled without moving the price. An imbalance in volumes is sometimes a sign of pressure from one side.

What is not in it

The future. An order is an intention that can be pulled at any moment, and they are pulled constantly. A large order that stood for a minute and vanished was neither support nor resistance — it was an order.

Practical use

Before sending a market order, look at how many levels it will walk through. In a liquid security this does not matter; in an illiquid one it determines the fill price. See Market and limit orders: what speed costs you and Liquidity: noticed only once it runs out.

Where to look

In the TradeAlmanac terminal the book is available for every instrument alongside the chart and the tape of trades — How to use the TradeAlmanac terminal.