An order book is the list of

orders Order, ORDER or Orders may refer to: * Categorization, the process in which ideas and objects are recognized, differentiated, and understood * Heterarchy, a system of organization wherein the elements have the potential to be ranked a number of ...

(manual or electronic) that a

trading venue An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are bought and sold. History 12th century: Brokers on ...

(in particular

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for t ...

s) uses to record the interest of buyers and sellers in a particular financial instrument. A

matching engine An order matching system or simply matching system is an electronic system that matches buy and sell orders for a stock market, commodity market or other financial exchange. The order matching system is the core of all electronic exchanges and ...

uses the book to determine which orders can be fully or partially executed.

Order book in securities trading

In securities trading, an order book contains the list of buy orders and the list of sell orders. For each entry it must keep among others, some means of identifying the party (even if this identification is obscured, as in a

dark pool In finance, a dark pool (also black pool) is a private forum (alternative trading system or ATS) for trading securities, derivatives, and other financial instruments.matching engine An order matching system or simply matching system is an electronic system that matches buy and sell orders for a stock market, commodity market or other financial exchange. The order matching system is the core of all electronic exchanges and ...

, orders are matched as the interest of buyers and sellers can be satisfied. When there are orders where the bid price is equal or higher than the lowest ask, those orders can be immediately fulfilled and will not be part of the open orders book. If this situation remains, due to an error or a condition of the market, the order book is said to be crossed.

Top of the book

The highest bid and the lowest ask are referred to as the top of the book. They are interesting because they signal the prevalent market and the bid and ask price that would be needed to get an order fulfilled. The difference between the highest bid and the lowest ask is called the

bid–ask spread The bid–ask spread (also bid–offer or bid/ask and buy/sell in the case of a market maker) is the difference between the prices quoted (either by a single market maker or in a limit order book) for an immediate sale ( ask) and an immediate pur ...

Book depth

The book depth refers simply to the number of price levels available at a particular time in the book. Sometimes the book is represented to a fixed depth, and orders beyond that depth are ignored or rejected, and in other cases the book can contain unlimited levels.

Multi-specialist book

In most practical applications, an order book contains bid and offer for one security, contract or good, with a specialist matching orders for the specific item. In his work,

Jean-François Mertens Jean-François Mertens (11 March 1946 – 17 July 2012) was a Belgian game theorist and mathematical economist. Mertens contributed to economic theory in regards to order-book of market games, cooperative games, noncooperative games, repeated ga ...

extends this and constructs an order matching mechanism that works across specialists, where he can cross orders that are not only in terms of bid and offer for a given traded item, but bids and offer can be expressed as a linear function of other traded items.

Other uses

An order book might also refer to a business's list of open, unshipped, customer

order Order, ORDER or Orders may refer to: * Categorization, the process in which ideas and objects are recognized, differentiated, and understood * Heterarchy, a system of organization wherein the elements have the potential to be ranked a number of ...

s, normally time-phased and valued at actual individual order prices, that may include

margin Margin may refer to: Physical or graphical edges * Margin (typography), the white space that surrounds the content of a page *Continental margin, the zone of the ocean floor that separates the thin oceanic crust from thick continental crust *Leaf ...

and

profitability In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs. It i ...

analysis.

References

{{Authority control Financial markets Business terms