Order Book

An order book is a real-time electronic list of buy and sell orders for a particular stock, showing pending transactions at different price levels. It helps investors and traders understand market depth, liquidity, and price movement. Order books are essential tools used in stock exchanges globally to maintain transparency and efficient trade execution.

An order book is a digital record that displays all outstanding buy (bid) and sell (ask) orders for a security. It continuously updates as traders place, modify, or cancel orders.

Order books provide:

• A clear view of demand and supply at different price points
  

• Real-time insight into trading activity
  

• Transparency about market participation
  

Shares of every listed company have a live order book on stock exchanges such as NSE and BSE, allowing participants to observe how many buyers and sellers are queued at specific prices.

Reading an order book helps traders interpret real-time market activity. Here’s how to understand it:

1. Identify Best Bid and Best Ask

These show the closest buy and sell prices and indicate immediate trading levels.

2. Study Bid and Ask Volumes

Higher bid volume signals strong buying interest; higher ask volume indicates selling pressure.

3. Analyse Market Depth

Deeper levels show the strength of supply/demand beyond the highest price points.

4. Observe Order Imbalances

When bid volumes significantly exceed ask volumes (or vice versa), short-term price bias may appear.

5. Track Changes in Real Time

Constant updates indicate active participation; slow movement suggests lower liquidity.

Understanding these elements helps in observing short-term price behaviour, relative buying and selling interest, and the balance of demand and supply in the market.

Below is a simple example to illustrate how an order book looks:

Bid Side (Buy Orders)

• ₹199 – 1,200 shares
  

• ₹198 – 900 shares
  

• ₹197 – 1,000 shares

Ask Side (Sell Orders)

• ₹201 – 1,500 shares
  

• ₹202 – 800 shares
  

• ₹203 – 600 shares

In this case:

• Best Bid: ₹199
  

• Best Ask: ₹201
  

• Bid–Ask Spread: ₹2

This example shows how price and quantity levels represent market sentiment and liquidity at any moment.

Order books provide several important advantages:

• High transparency by showing real-time buy/sell orders.
  

• Insight into liquidity, indicating how easily shares can be traded.
  

• Accurate price discovery, reflecting supply–demand interaction.
  

• Market depth analysis, helping assess pressure from buyers or sellers.
  

• Enhanced order execution visibility, enabling traders to observe entry and exit levels.
  

• Helps identify large orders, which may indicate institutional interest.
  

• Useful for short-term strategy, especially in intraday trading.

These insights make order books essential tools for market participants.

Order books serve multiple practical uses:

• Trade planning: Observing buy/sell levels reflected in market depth.
  

• Market sentiment interpretation: Identifying buyer or seller dominance.
  

• Risk management: Avoiding low-liquidity price zones.
  

• Scalping and intraday strategies: Using real-time order flow.
  

• Identifying support and resistance: Clusters of orders often form temporary levels.
  

• Monitoring institutional activity: Large orders may hint at significant buyer/seller interest.
  

• Entry/exit timing: Traders use depth and spreads to observe execution levels closely.

Order books play an important role in financial markets by offering a clear picture of demand, supply, and liquidity for any stock. They show buy and sell orders, help traders analyse market depth, and support effective decision-making. Whether used for intraday strategies or long-term monitoring, the order book remains a vital tool for understanding real-time market dynamics.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.