What Is an Order Book and How Does It Work?

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Key Takeaways

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• Order books provide a real-time snapshot of buy and sell orders (bids and asks), offering insights into market supply and demand for a specific trading pair.
• In liquid markets, order books update constantly, removing matched orders as trades are executed. This makes them a valuable tool for tracking live market activity.
• Traders use order books to identify potential support and resistance levels and assess market depth. However, large buy or sell walls can sometimes be misleading, so it's best to combine order book analysis with other market indicators for a clearer picture.

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If you’ve ever bought or sold crypto on an exchange, you’ve interacted with an order book—whether you realized it or not. The order book is the heartbeat of every trading platform, displaying real-time buy and sell activity. Understanding how it works can help you trade more effectively, spot trends, and make informed decisions.

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In this guide, we’ll break down the order book, its key components, and why it matters for traders like you.

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What Is an Order Book?

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An order book is a dynamic, constantly updating list of buy and sell orders on a crypto exchange. It displays:

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• Buy orders (bids) – The prices traders are willing to pay to buy an asset.‍
• Sell orders (asks) – The prices traders want to receive for selling an asset.

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On the Backpack, the order book is located under your trading chart and looks like this:

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By showing real-time market depth, the order book helps traders understand supply, demand, and price movements at any given moment. Think of it like a marketplace: If more people are willing to buy an asset at higher prices, the price tends to rise. If more people are trying to sell, prices may drop.

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How an Order Book Works

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In high-liquidity markets, the order book is in constant motion—alive with the ebb and flow of buy and sell orders. Every second, new bids and asks are added, shaping the battlefield where buyers and sellers negotiate in real time. When a trade executes, the matched orders disappear, making way for the next wave of market activity.

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As a buyer, your order lands in the book at the highest price you’re willing to pay. As a seller, it’s positioned at the lowest price you’re ready to accept. It’s a dynamic tug-of-war, where price isn’t just a number—it’s a statement of intent.

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The order book organizes buy and sell orders by price and quantity, creating a visual representation of market activity.

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1. Bids (Buy Orders)

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• Placed by traders who want to buy an asset at a specific price.
• Listed in descending order (highest bid at the top).
• The highest bid represents the most someone is willing to pay at that moment.

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2. Asks (Sell Orders)

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• Placed by traders selling at a specific price.
• Listed in ascending order (lowest ask at the top).
• The lowest ask is the least someone is willing to accept.

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3. Price and quantity:

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For each order, the book shows how much the trader wants to buy or sell and at what price.

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4. The Spread (Bid-Ask Spread)

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‍The gap between the highest bid and the lowest ask is called the bid-ask spread.

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• A narrow spread means high liquidity (lots of buyers and sellers).
• A wide spread suggests low liquidity, making trades less efficient.

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Example: If the highest bid is $29,950 and the lowest ask is $30,000, the bid-ask spread is $50.

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• Price and quantity: For each order, the book shows how much the trader wants to buy or sell and at what price.

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‍Matching Orders: How Trades Are Executed

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‍When a buy order matches a sell order at the same price, a trade is executed. There are two ways this happens:

• ‍Market Orders – Traders buy or sell instantly at the best available price.‍
• Limit Orders – Traders set a specific price at which they want to buy or sell, waiting for the market to reach their price.

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Pro Tip: Market orders are executed immediately but may have higher costs due to slippage. Limit orders provide better control over price but might take longer to execute.

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Depth Charts

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Traders often use depth charts, which are visual representations of the order book. On the chart, the x-axis shows price points, and the y-axis shows the volume of buy and sell orders at each price.

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‍‍Final Thoughts

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‍The order book is one of the most powerful tools in crypto trading. Whether you’re a beginner or an advanced trader, understanding how bids, asks, and spreads interact can help you trade smarter and navigate market fluctuations with confidence.

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Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Backpack. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Backpack is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice.

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