Order Book

What Is an Order Book?

An order book is a real-time electronic list displaying buy and sell quotes along with their respective quantities for a particular asset.

Order books organize bids (buy offers) and asks (sell offers) according to price and time, facilitating efficient trade matching. The upper section typically shows asks (sell orders), while the lower section displays bids (buy orders). The best available ask is known as the “best ask,” and the best available bid is the “best bid.” The difference between them is the “spread.” The total visible volume at each price level represents the market’s “depth.”

Why Is Understanding the Order Book Important?

Reading the order book helps you evaluate transaction costs and risk exposure.

The spread determines your immediate execution cost, while depth indicates whether large orders will move the market price significantly. By analyzing order density and queue positions, you can select optimal order strategies and minimize “slippage”—the difference between your expected and actual execution price. In crypto trading, both spot and derivatives markets rely on the order book, which also underpins market making and arbitrage strategies.

How Does an Order Book Work?

Order books match trades based on “price priority, then time priority.”

A limit order specifies a price and quantity and waits in the order book until matched, while a market order executes immediately at the best available prices in the order book. The exchange’s matching engine pairs buy and sell orders at identical prices, following a first-come, first-served rule.

The spread (difference between best ask and best bid) narrows with increased liquidity. Depth refers to total executable volume within a given price range, such as “±1% depth,” which measures all orders within 1% above or below the current price. Slippage correlates with order size and depth—larger orders or thinner depth result in greater deviation from expected prices.

Market makers provide continuous quotes, maintaining tight spreads and stable depth. Their posted prices adjust dynamically with market movements, forming a persistent queue of buy and sell offers.

Common Order Book Applications in Crypto

Order books are most prevalent in exchange spot and perpetual futures trading.

On centralized exchanges (CEXs) like Gate, users can view real-time order book data including top five levels of bids and asks, total order volume, and live trade updates. During volatile price swings, asks may be canceled or moved higher, while bids can be added or moved lower, affecting both spread and depth.

In order book-based decentralized exchanges (DEXs)—such as dYdX—the matching may occur off-chain, with settlement finalized on-chain. Users still have visibility into price queues and changing quantities.

Market-making bots synchronize orders across multiple exchanges to maintain stable spreads; arbitrage traders compare order books across platforms to exploit differences in spread and depth.

How to Trade Using the Order Book

Analyze best bid/ask prices and top five depth levels before placing orders.

Step 1: On Gate, choose a trading pair (e.g., BTC/USDT) and observe the spread between best bid and best ask, as well as the distribution of volumes from bid-1 to bid-5 and ask-1 to ask-5 to assess liquidity.

Step 2: Select your order type. Limit orders are suitable for controlling execution price; market orders offer fast execution but require slippage estimation—especially for less liquid assets or during volatile periods.

Step 3: Break up large orders. Execute big trades in smaller batches or set multiple limit orders to minimize market impact and reduce slippage.

Step 4: Implement risk controls. Use stop-limit orders—which specify trigger and execution prices—to protect against sudden market moves. Stop-loss rules automate exits when trigger prices are reached.

Step 5: Monitor queue position. Limit order queues follow time priority; entering earlier at a given price increases your likelihood of quick execution.

Practical example: For BTC/USDT with a narrow spread (best bid/ask differ by only a few dollars) and robust top-five depth, market orders usually execute close to best bid/ask prices. For small-cap pairs with limited volume across top-five levels, market orders can incur significant slippage—limit orders are generally safer.

Recent Order Book Trends & Noteworthy Data

Over the past year, overall spreads and market depth have stabilized, though high volatility still causes temporary expansion.

In the first half of 2025, major pairs (like BTC/USDT) on centralized exchanges typically saw bid-ask spreads around $0.5–$3; sharp moves or macro events could expand spreads to $10–$50 temporarily. Small-cap pairs experienced much wider spreads, sometimes exceeding 1% of face value during volatility. Data is benchmarked against public exchange data and industry research reports (e.g., 2025 Q2–Q3).

For depth, throughout 2025, “±1% depth” on top platforms for major pairs ranged from several million to tens of millions of USD; new or less-traded pairs often showed only tens of thousands to hundreds of thousands USD in comparable depth, making them susceptible to price moves from medium-sized trades. Compared to 2024, major pair depth increased slightly, attributed to more market-making activity and fee optimization.

Structurally, in 2025, order book models still dominated centralized exchange spot and derivatives trading; order book-style DEXs gained share in the derivatives sector, fluctuating in the double-digit percentage range over the year. Note platform differences when reading industry reports (e.g., whether data includes wash trading or duplicate entries).

How Does the Order Book Compare With AMMs?

Order books use queued limit orders for pricing; AMMs rely on formulas.

Order books aggregate buy/sell interest by price and time—prices are set by posted orders and executions, making them suitable for professional trading and advanced risk management. AMMs (Automated Market Makers) use mathematical formulas (commonly x*y=k) to determine prices based on asset ratios in liquidity pools—there are no queued orders; users trade directly against the pool.

Order books offer controlled spreads, transparent depth, and flexible order placement—but require matching infrastructure and market makers. AMMs allow anytime trading with lower barriers to entry but suffer from higher slippage in low-liquidity scenarios and may expose liquidity providers to impermanent loss. Both models coexist in crypto: CEXs typically use order books; many DEXs use AMMs; some platforms hybridize both mechanisms.

Key Terms

• Order Book: Real-time record of all buy/sell orders in the market, showing supply/demand at different prices.
• Liquidity: The ease with which an asset can be bought or sold; higher liquidity means easier trading.
• Slippage: The difference between expected execution price and actual trade price, usually caused by insufficient liquidity.
• Market Maker: A participant who maintains liquidity by continuously quoting buy/sell prices.
• Limit Order: An instruction to trade at a specified price; only executes when that price is reached.

FAQ

What’s the Difference Between Bids and Asks in the Order Book?

A bid represents a trader’s willingness to buy at a certain price and quantity; an ask is their willingness to sell. Bid prices are generally lower than ask prices—the difference is called the spread. Narrow spreads mean higher liquidity and lower trading costs.

What Does Order Book Depth Mean—and Why Does It Matter?

Order book depth refers to cumulative volume at different price levels. Deeper markets have abundant liquidity—large trades won’t cause much slippage; shallow depth can result in execution prices deviating from expectations. On Gate, deeper pairs offer more stable trading conditions.

Can I Predict Price Movements by Watching the Order Book?

The order book reveals real-time supply and demand dynamics—you can monitor large flows or identify support/resistance levels for decision support. However, it’s just one tool; it doesn’t predict prices directly. Market sentiment and breaking news also drive prices—use technical and fundamental analysis together for better insight.

What Is Order Book Manipulation by Bots or Large Traders?

Some participants create false impressions by rapidly submitting or canceling orders—this is called a “wall” or “spoofing.” It aims to mislead others or influence pricing. New traders should be wary of such manipulation signals; trading on reputable platforms like Gate offers better safeguards against these risks.

Why Did My Order Execute at a Worse Price Than Expected?

This is usually due to slippage—fast market moves or low liquidity cause trade prices to differ from posted order prices. Shallow depth, illiquid pairs, or large trades can all increase slippage. To reduce slippage: trade highly liquid pairs, split large orders, and avoid high-volatility periods.

References & Further Reading

• https://en.wikipedia.org/wiki/Order_book
• https://www.investopedia.com/terms/o/order-book.asp
• https://optiver.com/explainers/orders-and-the-order-book/
• https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/order-book/
• https://www.ig.com/en/glossary-trading-terms/order-book-definition