What is an Order Book and Order Depth?
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1. What is an Order Book?
In cryptocurrency trading, an order book is a list sorted by price, containing all the current buy and sell orders in the market. Most centralized exchanges use an order book model, where makers create orders at different price levels that are recorded in the order book, and takers match these orders to complete trades.
2. What is Order Depth?
Order depth refers to the total quantity of orders at each price point in the order book. By examining order depth, traders can understand market liquidity, i.e., the number of orders that can be executed immediately. Deeper order depth usually indicates higher liquidity, while shallow order depth can lead to higher price volatility or slower trade execution.
Order books and order depth provide market information and indicators, offering data references for traders' decisions. Traders can use order books to understand the current buying and selling situation in the market, including the best bid and ask prices and the level of competition. Order depth helps traders gauge market liquidity and the likelihood of trade execution.
3. Components of an Order Book
An order book typically consists of four parts: buy orders, sell orders, price, and order quantity.
Buy Orders: A list of orders from buyers willing to purchase assets at specific prices.
Sell Orders: A list of orders from sellers willing to sell assets at specific prices.
Price: The price levels of buy and sell orders. Each price level shows the quantity of orders for assets to be bought or sold.
Order Quantity: The quantity of assets in the buy and sell orders.
4. What Does an Order Book Do?
4.1 Receiving Orders: When traders submit buy or sell orders, the trading platform receives these orders.
4.2 Recording Order Information: Orders typically include information like trading direction, quantity, price, and time of order.
4.3 Sorting Orders: The order book sorts buy and sell orders by price from high to low or low to high, grouping orders at the same price together.
4.4 Updating the Order Book: When new orders are created, the order book inserts them in the appropriate place by price and updates the order book.
4.5 Matching Trades: When buy and sell order prices match, a trade occurs.
4.6 Updating Order Depth: The order book updates the order depth accordingly whenever orders are matched or canceled, reflecting the total quantity of buy and sell orders at each price point.
4.7 Real-time Updates: The order book updates in real-time on the trading platform, displaying new orders and completed trades, enabling traders to make decisions based on the latest market conditions.
5. Importance of the Order Book
5.1 Price Transparency: The order book provides price information for buy and sell orders in the market, allowing traders to understand current market price levels clearly.
5.2 Market Depth Assessment: Markets with greater depth are generally more attractive as they offer higher liquidity and smaller bid-ask spreads, making it easier for traders to execute buy and sell operations.
5.3 Market Monitoring and Analysis: Traders can observe changes in the order book to compare buying and selling forces in the market and use this information to devise trading strategies and predict price trends.
6. MEXC Visualization Features
6.1 Merged Depth: The system displays orders based on the display precision you set.
6.2 Order Display Methods: There are two display methods: Amount and Cumulative.
Amount: The bar chart background reflects the quantity of buy and sell orders.
Cumulative: The depth chart background reflects the depth of buy and sell orders.
6.3 Order Display: By checking "Display Avg. & Sum," the system calculates and displays the average price, token names, and the sum of exchanged tokens in a pop-up window when you hover over the order data with your mouse.
Disclaimer: This information does not provide advice on investment, taxation, legal, financial, accounting, consultation, or any other related services, nor does it constitute advice to purchase, sell, or hold any assets. MEXC Learn provides information for reference purposes only and does not constitute investment advice. Please ensure you fully understand the risks involved and exercise caution when investing. The platform is not responsible for users' investment decisions.