Order book forex

Order Book.

What is an 'Order Book '

An order book is an electronic list of buy and sell orders for a specific security or financial instrument, organized by price level. The order book lists the number of shares being bid or offered at each price point, or market depth. It also identifies the market participants behind the buy and sell orders, although some choose to remain anonymous. The order book is dynamic and constantly updated in real time throughout the day. Exchanges such as Nasdaq refer to this order book as the “continuous book.” Orders that specify execution only at market open or market are maintained separately. These are known as the “opening (order) book” and “closing (order) book,” respectively.

BREAKING DOWN 'Order Book '

At market open on the Nasdaq, the opening book and continuous book are consolidated to create a single opening price. A similar process is followed at market close, when the closing book and continuous book are consolidated to generate a single closing price.

The order book information helps traders make better-informed trading decisions, since they can see which brokerages are buying or selling the stock and whether market action is being driven by retail investors or institutions. The order book also shows order imbalances, which may provide clues to the stock’s direction in the very short term. A massive imbalance of buy orders compared to sell orders, for instance, may indicate a move higher in the stock due to buying pressure.

The order book is also useful in pinpointing a stock’s potential support and resistance levels. A cluster of large buy orders at a specific price may indicate a level of support, while an abundance of sell orders at or near one price may suggest an area of resistance.

The order book does not show “dark pools,” which are batches of hidden orders maintained by large players who do not want their trading intentions known to other traders. The presence of dark pools reduces the utility of the order book to some extent, since there is no way of knowing whether the orders shown on the book are representative of true supply and demand for the stock.

Order books continue to collate an increasing amount of information that is available to traders for a fee. Nasdaq’s TotalView, for example, claims to provide more market information than any other book, such as displaying more than 20 times the liquidity of its legacy Level 2 market depth product. While this added information may not be of much significance to the average buy-and-hold investor, it may be useful to day traders and experienced market professionals for whom the order book is one of the most critical inputs in formulating trading decisions.

Description of Order Book, Level I and II Market Data.

Learn the Difference Between Market Data Feeds.

One of the tools day traders use to make their trades is market data, commonly referred to as Level I and Level II market data. Market data includes information about current prices and recently completed trades. Level II provides more information than Level I. Traders decide which data feed they require for their trading, and then subscribe to that data feed through their broker. Depending on the broker, Level I and Level II may have different costs associated with them.

Therefore, be aware of the differences in data feeds, so you aren't paying for something you don't need.

Level 1 Market Data.

Basic market data is known as Level I and includes the following information:

Bid price: The highest posted price someone is willing to buy an asset at. Bid size: The number of shares, forex lots or contracts that people are trying to buy at the bid price. Ask price: The lowest posted price someone is willing to sell an asset at. Also called the "offer price." Ask size: The number of shares, forex lots or contracts being sold at the ask price. Last price: The price at which the last transaction occurred. Last size: The number of shares, forex lots or contracts involved in the last transaction.

Level I market data provides all of the information needed to trade most chart-based trading systems. If trading a price action or indicator based strategy, then Level I market data is all that is required.

Scalpers, or traders who trade based on changes in how other traders are bidding and offering, use Level II data, which provides multiple levels of bids and offers.

Level II Market Data.

Level II provides more information than Level I data. Mainly, it doesn't just show the highest bid and offer, but also shows bids and offers at other prices.

Highest bid prices: The highest five to 15 prices where traders are willing to buy an asset, and have placed an order to do so. This means you not only see the current bid, but also all the bids currently below it. In actively traded stocks, there will typically be bids every $0.01 below the current bid, and in actively traded futures, there will typically be a bid each tick below the current bid. If there is a gap between the current bid and next bid, that typically means the stock or contract may have a larger bid/ask spread than stocks with bids or offers at every visible price level. Bid sizes: The number of shares, forex lots or contracts that people are trying to buy at each of the bid prices. Lowest ask prices: The lowest five to 15 prices where traders are willing to sell an asset, and have placed an order to do so. In actively traded stocks there are typically offers every $0.01 above the current ask, and in actively traded futures, there are offers each tick above the current ask. Ask sizes: The number of shares, forex lots or contracts that are available at each of the ask prices.

Level II market data provides the additional information needed to trade based on changes that occur in the bids and offers.

Some traders like to look at how many shares are being bid versus how many are being offered. This may indicate which side is more eager or more powerful, and may predict the short-term direction of the price. This tactic is combined with watching the recent transactions. If most of the transaction are occurring at the bid, it means the price could go down in the short-term, where as if most of the transactions are occurring at the offer the price could go up. These method may also be combined with chart-based strategies.

Level II is also known as the order book, because it shows the orders that have been placed and are waiting to be filled. An order is filled when someone else is willing to transact with someone else at the same price. Level II is also known as market depth, because it shows the number of contracts available at each of the bid and ask prices.

Availability and Pricing.

Market data comes from the exchange that offers the market. For example, the New York Stock Exchange (NYSE) provides Level I and II data for stocks listed on the NYSE. Day traders receive the market data via their day trading brokerage. Level I and II is available for futures and stocks. Some forex brokers also offer Level II market data, although not all.

Level II costs more than Level I for stocks and futures. Some brokers may provide all the data feeds for free, but typically charge higher commissions to compensate. Forex brokers, that provide Level II, usually don't charge for it.

Forex.

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Forex Order Book.

A 24-hour summary of open orders and positions held by OANDA's clients .

Historically, only dealing desk traders had this information, placing other traders in the forex market at a disadvantage.

OANDA is the first forex market-maker to break down this barrier with the Forex Order Book and Open Positions Summary. These two utilities are part of OANDA’s suite of decision-making software tools.

With the Forex Order Book, compare OANDA's clients' open orders and positions for any major currency pair. Use the slider in the rate chart to see how the statistics have changed over the past 24-hours.

Open orders: see a snapshot of the trigger points for all open orders held by OANDA's clients. This information could be interpreted as an indicator of the client price expectations that are contributing to natural resistance and support levels.

Open positions: get a snapshot of the entry prices for all open positions currently held by OANDA's clients. This data could be interpreted as an indicator of the market's reaction to price changes, and the pressure on prices due to unrealized profit and loss.

To visit OANDA's Forex Order Book webpage, click here.

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