How to read the order book?

Learn how to read an order book from a cryptocurrency exchange using the Atani app

One of the fundamental pieces of information of a market or exchange is the well-known order book, since it reflects the activity and reality of a market in real time. For this reason, it is vital that every trader understands how this element works and how to read the data reflected in this instrument. This is especially vital for those starting out in the world of trading, as they often overlook the usefulness of the order book in carrying out their trading strategies.

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What is an order book?

An order book is actually a list of the different operations that take place in a market or exchange on a given good or asset in real time. Basically, it is a space that reflects the buying or selling interest that takes place in the market on the different assets found there. This allows an order book to be a perfect space to know the volume of operations and the level of prices that are handled in that market. Additionally, it also helps us to recognize the depth of the market and the number of operations in it.

At this point, we can already recognize the level of information that an order book has and how relevant it is for trading operations. For example, from this instrument we can obtain the minimum and maximum purchase price of an asset at a given time. With that information we can be able to recognize the price spread and also the support and resistance prices of the asset. This gives us a much clearer idea of the level of relevance we should give to this instrument and recognize how it works to take better advantage of it.

Get to know the order book at Atani

The multi-exchange trading application Atani, has a dedicated space to make visible the order book of the exchange and asset you want. This space is located at the bottom of our application, as shown in the following screenshot.

Order book in Atani

And displays the following information:

Order book in Atani

In this case, we have chosen the Binance exchange, with the BTC/USDT pair and, therefore, the Atani order book shows us the information of this particular exchange and cryptocurrency pair. This section is available in the Advanced and Pro trading experiences of Atani.

Parts of an order book

Now, how can we read this section of information correctly? Well, the first thing to do is to recognize its different parts, among which we have:

  1. Current asset price
  2. Price spread
  3. Bids orders section
  4. Asks order section
Order book parts

In the graph we can clearly see how the order book automatically orders the purchases or sales from smallest to largest quantity. Additionally, we can identify several important aspects in each of these orders as we will see in the following screenshot:

Info in order book

Here we can see that each of the lines in the order book corresponds to an order (or group of orders, in case several orders share the price) with a specific price. In our example of the previous screenshot, we can see that in this case we are pointing to a Bids order or buy order, where we can see elements such as:

  1. The amount of BTC to be purchase.
  2. Total USDT in the purchase.
  3. The total BTC to be receive.
  4. Price of each BTC suggested by the order (or group of orders).

These are the basic pieces of information that can be found in the order book shown by Atani.

Analyzing order book information

But this data displayed by the order book can also have a much more advanced reading, as we will show below:

Top of the order book

The top of the order book, or top order book, is a space at the end of this instrument that shows the highest prices for selling and the lowest prices for buying. Thus, we have two important points:

  1. The highest bid (purchase) is the highest price that buyers are willing to pay for the asset.
  2. The lowest price (sale) is the lowest price that sellers are willing to accept for the asset.

This helps us to understand the dynamics and depth of the market and how we should act with our orders when making a trading operation.

Bid-ask spread

The bid-ask spread is actually the difference in price between the highest bid and the lowest ask for an asset in the market.

Spread view

In this case, by looking at the top of the order book, we can identify the two pieces of information needed to calculate the spread of the price of the asset in the market. In this case, we have that the highest bid price is $33,945.73, while the lowest ask price is $33,945.74, which is a difference of 1 cent between both prices. This difference can be seen in the spread data, which shows that the difference or spread is 0.000029 %.

This is important because a small spread indicates that the market is highly dynamic, with great liquidity and great depth, which indicates that the market is in good health.

Market liquidity

Another important aspect of the market that we can know in the order book is the liquidity of the market. This is easily identifiable in Atani, as it is shown in a completely graphical way. First of all, if you look at the Atani order book you will see a series of green (bids) and red (asks) bars, which can be more or less large (starting with the smaller ones at the top and going down they become larger).

These bars indicate the amount of liquidity that exists in that price range.

Liquidity level

In this screenshot you can see how the lowest level of liquidity (at the top) shows clear differences in both buying and selling the asset. And, as we go down, the liquidity increases because there are those who want to buy or sell at more attractive prices for their own trading strategies.

The above screenshot shows us a very clear reality in this market: there are more interested in buying at a low price, but the liquidity to sell at that level is very low. This means that there are traders looking to accumulate (waiting for a future price increase), but those who have the BTC are looking to sell at a higher price, in order to withdraw from the market with better profits. In any case, the liquidity level in this case is high, since the supply of both assets (BTC/USDT) is high in this case.

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