Order Book Explained for Beginners

On the Bybit trading interface, to the right of the trading charts, you can find the Order Book.

Besides the last traded price and best bid and ask price, the Order Book reveals important information about market depth.

What is market depth?

Market depth measures the volume of limit orders in real time. It represents the trading platform’s ability to sustain relatively large market orders without impacting the price, and is one of the key indicators of liquidity.

The greater the market depth, the smaller the market impact of a large market order, and thus less likely the chance of the price being manipulated.

For example: Ann plans to buy 5,000 BTCUSD contracts by market order. The best ask prices on both exchange A and B are 9,200. However, the two platforms demonstrate different market depths.

Exchange A: To fulfill the 5,000 contracts, Ann will purchase 1,000 at $9,200, $9,300, $9,400, $9,500 and $9,600 respectively. In short, she spends $5,000 to purchase 0.532 BTC in total. When Ann’s order is filled, the best ask price will be pushed up to $9,700.

Exchange B: There are 10,000 BTCUSD sell orders at best ask price $9,200. Ann’s order can be easily fulfilled at this price. In other words, Ann spends $5,000 to purchase 0.543 BTC. When Ann’s order is filled, the best ask price remains at $9,200.

With a better market depth on exchange B, Ann enjoys a lower trading cost (more BTC purchased for the same amount of USD), and exerts less price impact on other traders.

How to read the Order Book

The Order Book shows how many limit orders are active at each price level at the current moment.

Taking the BTCUSD contract as an example, you can find the following information from its order book.

  • The two prices in the middle are last traded price (1) and mark price (2).
  • Price: The prices of the sell limit orders are in red (3), and buy limit order in green (4).
  • Quantity: Order quantity in USD terms at each order price.
  • Total: The total order quantity accumulated from the best bid (ask) price to this price level. For example, the total quantity corresponding to the second best ask price $9,263.5 is 1,684,065. It is the sum of the order quantity at the best ask price (1,483,585) and the quantity at the second best ask price (200,480).
  • You may choose to group the orders by 0.5 USD or 1 USD price gap.

By clicking the zoom icon (5) at the upper right corner, you can have a more granular review the Order Book.

If Ann wants to sell 1,200,000 BTCUSD contracts by market order, her order will be executed gradually from the best bid price of $9,264 to the 4th best bid price of $9,262. The last traded price and best bid price will both be updated to $9,262 after Ann’s order is filled.

If Ann wants to sell 2,500,000 BTCUSD contracts by market order, her order will be filled down to $9,255.

How to use Order Book?

As mentioned earlier, you can have a quick review of the current market depth and estimate the filled price of a market order. 

In addition, you can also gauge whether buy side or sell side has stronger momentum by reading the order book. If the order quantity on the buy side is significantly larger than that of the sell side, especially on the best bid/ask price level, it suggests stronger momentum from the buy side, and that the BTC price is likely to rise. Similarly, if the order quantity on the sell side is significantly larger, it suggests stronger momentum from the sell side. Of course, as the order book moves in real time and even jumps dramatically, you have to monitor it closely to understand the subtle price trend.