Bids and asks
Bids are resting buy orders and asks are resting sell orders. The highest bid and lowest ask form the best available quoted prices.
The distance between them is the bid-ask spread.
Market depth
Depth describes displayed liquidity available across multiple price levels. Deeper markets can generally absorb larger orders with less immediate price impact than thin markets, all else equal.
Liquidity and slippage
A market order larger than the quantity available at the best price can execute across multiple levels, producing a worse average execution price than the first quote.
The order book changes continuously
Resting orders can be added, modified, canceled or executed. A large visible order therefore does not guarantee that the liquidity will remain when price reaches it.
Order-book snapshots show current displayed orders. They do not prove future execution or participant intent.
Order book versus trade flow
The order book describes resting liquidity. Trade data describes transactions that actually executed. Combining the two can provide richer context, but they answer different questions.
The best bid, best ask and spread
The highest displayed resting bid and lowest displayed resting ask form the top of the order book. Their difference is the quoted bid-ask spread.
A narrow spread can indicate competitive top-of-book pricing, but it does not by itself describe how much depth is available for a larger order.
Order size changes expected execution
An order larger than the quantity available at the best price may consume multiple price levels. The resulting average execution price can therefore differ from the first quote visible in the book.
This relationship between order size and available depth is one reason liquidity and slippage should be considered together.
Displayed liquidity is conditional
Resting limit orders can be filled, modified or canceled. A snapshot therefore represents displayed interest at that moment rather than a promise that the liquidity will remain available.
Crypto order books are also venue-specific, so visible depth on one exchange does not represent every market.
Order-book size can disappear before execution. Do not treat a visible liquidity wall as certain future support or resistance.
Key takeaways
- Order books show displayed resting bids and asks.
- Depth influences how easily size can execute.
- Large orders can experience slippage across multiple levels.
- Displayed orders can be canceled before execution.
Sources & further reading
This lesson is educational material. Market structure, exchange rules, fees, margin requirements and derivatives mechanics can differ by venue and can change over time. Verify current rules with the venue you use.