How a Crypto Exchange Order Book Works
Learn how bids, asks, spread, depth and matching work, and why the order book matters before placing a crypto trade.
What is an order book?
An order book is a live list of open buy and sell orders for a trading pair.
It shows the prices and quantities traders are currently willing to buy or sell.
The order book changes continuously as new orders are placed, existing orders are cancelled and trades are executed.
Bids
Bids are open buy orders.
A bid says that a trader is willing to buy a certain quantity at a specified price.
The highest bid is normally the most competitive current buy price because it is the highest price a buyer is offering.
Asks
Asks are open sell orders.
An ask says that a trader is willing to sell a certain quantity at a specified price.
The lowest ask is normally the most competitive current sell price.
Best bid and best ask
The best bid and best ask form the top of the order book.
If the best bid is 99 and the best ask is 100, the difference is 1.
That difference is the spread.
Understanding the spread
The spread is one indication of market liquidity.
A narrow spread generally means buyers and sellers are quoting prices close together.
A wider spread can mean there is less competition around the current market price or that the market is moving quickly.
The spread can change at any time.
Order-book depth
Depth is the total amount of buying and selling interest available across multiple price levels.
A market can show an attractive best price but have very little quantity available at that level.
If a market order is larger than the quantity available at the best price, the remaining portion can continue filling against the next available price levels.
This is why order size and depth should be considered together.
How matching works
A trade occurs when compatible buy and sell orders can be matched.
For example, if a sell order is available at 100 and a buyer submits an order that can execute at 100, matching can occur.
The exchange matching engine processes compatible orders according to the market's matching rules.
Market orders and the order book
A market order requests execution against currently available liquidity.
It can consume multiple price levels.
That means the average fill price can differ from the last traded price shown before you submitted the order.
This is especially important when:
- the order is large;
- the market has limited depth;
- the spread is wide;
- prices are moving quickly.
Limit orders and the order book
A limit order specifies a price boundary.
If you place a buy limit below the current best ask, the order can remain in the order book waiting for a seller.
If your limit price can immediately match an existing sell order, some or all of the order may execute immediately.
A limit order can therefore be fully filled, partially filled or remain open.
Why visible depth can change quickly
Order books are dynamic.
Other participants can:
- place new orders;
- cancel orders;
- modify trading activity;
- execute against existing orders.
Never assume visible liquidity will remain available until your order arrives.
Practical checklist
Before placing a large order:
- check the spread;
- review several levels of depth;
- consider the size of your order relative to visible liquidity;
- understand whether you are using Market or Limit;
- review the final execution in Trade History.
Continue with Liquidity, Spread, Slippage and Execution Explained.
For account-specific help, submit a support request: https://grovexcom-help.freshdesk.com/support/tickets/new