How markets work
Order book
Also called Depth of market or Level 2
The live list of every outstanding buy and sell order, arranged by price.
How it works
The book shows how many shares people want at each price level on each side. The top of the book is the best bid and best ask; the levels beneath show how much size sits behind them.
Depth matters more than the spread for anyone dealing in size. A tight spread with almost nothing behind it means a modest order will eat through several price levels and finish well away from where it started.
Where it misleads people
Displayed size is not a promise. Orders can be cancelled in microseconds, and some of what appears in the book is never intended to trade. Reading the book as a picture of genuine intent is how people get taken apart.
Related terms
- Bid-ask spreadThe gap between the highest price anyone will pay and the lowest price anyone will accept.
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- SlippageThe difference between the price you expected and the price you actually got.
- Market makerA firm that continuously quotes both a buy and a sell price, so there is always someone to trade with.
- Limit orderAn instruction to trade only at a specified price or better, accepting that it may never fill.
Mentioned in
More in How markets work
- Payment for order flow
- Nominee account
- Securities lending
- Settlement
- Market impact
- Short interest
- Market hours
- Short selling
All 33 How markets work terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.