An order book has two sides. Buy orders, known as bids, show the prices and amounts that buyers are willing to pay, while sell orders, known as asks or offers, show the prices and amounts that sellers are willing to accept. Both traditional exchanges and centralised crypto exchanges typically display this information openly, updating constantly as new orders arrive and existing ones are filled or cancelled.
The gap between the highest current bid and the lowest current ask is called the spread, and it is one simple measure of how liquid a market is at that moment. The total amount of buy and sell orders sitting at various price levels is referred to as the order book's depth. A market order fills immediately against whatever is available in the book, while a limit order sits on the book at a chosen price until it is matched or cancelled.
When an order book has little depth, a single large trade can move the price more than it would in a deeper market, since there simply are not enough orders at nearby prices to absorb it. This effect, known as slippage, is one reason traders often check order book depth before placing a large trade, particularly in smaller or less actively traded markets.
Key takeaways
- An order book lists current buy orders (bids) and sell orders (asks), ranked by price.
- The gap between the best bid and best ask is called the spread, and reflects short-term liquidity.
- A thin order book with little depth can cause larger trades to move the price more, a problem called slippage.
Order Book — frequently asked questions
What is the difference between a market order and a limit order?
A market order fills immediately at the best price currently available in the order book. A limit order instead waits on the book at a price the trader specifies, and only fills if the market reaches that price.
Do all crypto exchanges use an order book?
Centralised exchanges generally do, similar to traditional markets. Many decentralised exchanges instead use liquidity pools and automated market makers, which set prices with a formula rather than matching individual buy and sell orders.
Related terms
SlippageLiquidityCentralised Exchange (CEX)Decentralised Exchange (DEX)Volatility All terms →New to crypto, or filling in the gaps? Work through the essentials in Learn, browse every term A–Z, or see live prices for the coins these concepts power.