Order Book — What It Is and How to Read It
What is an order book, how to read it, and what it's used for on the stock exchange. Explanation of bid, ask, spread, and market depth.
What is an order book?
An order book is an electronic list of all active buy and sell orders for a specific financial instrument on an exchange. It shows at what prices and in what quantities investors want to buy (bid) and sell (ask).
Structure of the order book
The order book consists of two sides:
- Bid (buy orders) — prices at which buyers want to purchase the instrument. Ordered from highest to lowest.
- Ask / Offer (sell orders) — prices at which sellers offer the instrument. Ordered from lowest to highest.
Best bid — the highest buying price. Best ask — the lowest selling price. The difference between them is the spread.
How to read an order book?
Example for XYZ company shares:
| Buy (bid) | Price | Sell (ask) |
|---|---|---|
| 500 shares | 99.50 PLN | — |
| 300 shares | 99.00 PLN | — |
| — | 100.00 PLN | 200 shares |
| — | 100.50 PLN | 400 shares |
Highest bid: 99.50 PLN. Lowest ask: 100.00 PLN. Spread: 0.50 PLN (0.5%).
Market depth
Market depth is the total volume of orders at individual price levels. High depth = high liquidity — large orders don't significantly move the price. Low depth = risk of large fluctuations with bigger transactions.
Spread — why it matters?
A narrow spread (e.g., 0.01%) means a liquid market — easy to buy and sell without loss. A wide spread (e.g., 2–5%) signals low liquidity and higher transaction costs. When investing in ETFs and stocks, always check the spread before placing an order.
Types of orders in the context of order book
- Limit order — goes into the order book and waits for execution at a set price
- Market order — executed immediately at the best available price from the order book
- Stop order — activates only after reaching a specified price
How Freenance can help
Freenance helps track your stock market investments — shares, ETFs, and other instruments. While Freenance doesn't display real-time order books, it aggregates your positions and shows their value on one dashboard.
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