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Crypto 101: How to Read an Order Book

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There’s no doubt that new traders can get easily confused when first getting introduced to the crypto markets. Between the candlestick charts, depth charts, volume, moving averages, etc. all cluttering the screen, things can be a bit confusing. But what about all those numbers on the side? You probably already know and see all the recent trades going on in the market, but you’ve likely also seen a stack of numbers, prices, and quantities with little movement just sitting there. What is that? Well, today we’re going to take a look at the ‘order book’ and break it down for beginners so you can understand not only how to read it, but what it’s telling you as a trader.

 

What Is It?

Though it may look different on different exchanges, the order book means the same thing across the board. It’s a log of who wants to buy and sell a specific cryptocurrency at a specific price and it shows how much traders are willing to buy or sell.

 

The terms typically used are either “Bid” and “Ask” or “Buy” and “Sell.” “Buy” and “Sell” are easy to understand, but to remember “Bid” and “Ask,” just think of it like an auction. The ones selling have an “Asking” price for their assets and the ones buying are placing “Bids” for the assets on the markets. The order book can look a little different on each exchange, here are a couple of examples.

 

GDAX

 

In GDAX, we have the order book placed on the left-hand side. The top numbers in red show those in the market selling while the green shows those in the market looking to buy. In the two additional highlighted boxes, we find some more information.

 

The blue box shows how much bitcoin (BTC) is up for sale and purchase at a specific price point, and the yellow box shows what price that is. For example, the current price of BTC at time of writing is at $9,114.73. If the price drops to $9,110, then there are enough buy orders in the market to purchase 22.551 BTC worth.

 

These buy orders and sell orders are the product of traders placing limit-sell and limit-buy orders in the market. Alternatively, if the price of BTC jumps up to $9,350.00, then there are enough sell orders already placed in the markets to sell off 12.041 BTC for buyers at that price point.

 

This is also illustrated in the “depth charts.” When looking at “sell walls” or “buy walls,” these charts are just visualized data taken from the order books. The point where the two sides of the order books meet is the current market price. Example below:

 

 

Binance

 

In another example, we see Binance has a similar setup. The top portion of the order book shows who is selling BTC, what price they’re selling at, and how much there is on the market at that price point. On the bottom portion of the order book, we see who is willing to buy BTC in the markets at a specific price and how much the market is willing to buy at that price in total.

Why They Matter

The order books are important for traders and investors because they’re able to give us a significant amount of insight as to what the market is doing and what the general consensus is. For example, if we see a massive buy wall (lots of buy orders) for BTC at $9,000, then we can tell that we’re likely to see a significant amount of support at that level, even without consulting the charts and past performance. Likewise, the same can be done for resistance levels. If we see a large sell wall at a specific price, then we can get an idea of where the next resistance level is likely to be and how significant it will be if the market busts through it.

 

 

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