Order Books Explainer
An order book is an electronic record of buy and sell orders available on a trading venue. It groups interest by price and displays the size available at each visible level, with the best bid and best ask forming the top of the book.
Exchanges use defined priority rules to decide which orders execute first. Price usually comes before time, but order attributes, displayed status, venue rules, and special programs can affect the queue. A marketable order trades against available interest starting with the best price.
The visible book is incomplete. Some orders are hidden, reserve only part of their size, route elsewhere, or depend on conditions. U.S. trading is fragmented across exchanges and off-exchange venues, so one venue’s depth is not the entire market.
Orders can be added, canceled, or changed in milliseconds, making displayed liquidity less durable during volatility. Traders should consider total order size, depth across prices, routing, and limit protection rather than assuming every visible share will remain available until their order arrives.
Venues rank buying and selling interest using price and other priority rules.
The best displayed levels form the market top.
Trading occurs across exchanges and off-exchange venues.
Hidden and reserve orders also reduce visible completeness.
Quotes change as orders execute, cancel, or reprice.
Large orders should account for depth and slippage.
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