How order books work
Every limit order sits in the book at a specific price until it executes or gets cancelled. The book shows:
- Bids — orders to buy, sorted high to low.
- Asks — orders to sell, sorted low to high.
- Spread — the gap between best bid and best ask.
- Depth — how much volume sits near the current price at each level.
A market order doesn’t sit in the book — it sweeps through existing orders from the top, consuming depth until filled. A $100k market buy on a thin order book can execute at prices several percent worse than the top of the book (this is slippage). A limit order, by contrast, waits passively at a chosen price and fills only if the market comes to it.
What order books reveal
Traders read order books for context the chart alone can’t show:
- Large resting orders — a $50M wall of bids at $60,000 signals a level many traders expect to hold.
- Order-book imbalance — heavy skew toward bids or asks hints at which side has more conviction.
- Spoofing and wash patterns — walls that appear and vanish without executing are often manipulation; sophisticated feeds can filter this out.
- Liquidity depth — how much can actually be moved without slippage. A market looks liquid at the top of book but thin two levels down; real traders watch cumulative depth curves.
Risks and considerations
Order books on low-liquidity venues or for small-cap altcoins are easily manipulated: a handful of participants can paint walls to bait traders into setting stop-losses or breakout entries, then pull the walls and reverse the move. Order-book data also lags in fast markets — by the time you see a large order, it may have already been cancelled. For assets below the top 50, treat order-book depth as a hint, not a guarantee; cross-check against the CEX’s actual trade history (the tape) and independent price feeds. On AMM DEXs the equivalent concept is pool depth and slippage curve, which is continuously priced rather than discrete.