What is an order book?
An order book is an electronic register of buy and sell orders for specific securities at all price levels. It's updated in real time and is an important indicator of market depth. The order book helps traders gauge the state of play at any one time.
Where have you heard about order books?
As an investor, either you or your financial adviser may have made use of order books to judge both the level of demand for a security and the sort of investors buying or selling it – private or institutional.
What you need to know about order books...
Order books have greatly improved the transparency of financial marketplaces. The buy and sell orders listed in a security’s order book are arranged by price. The book also shows how many bids and offers there are at each price level.
It can identify any large imbalance in orders on either the buy or sell side, giving clear indications as to the security's likely price trend.
But buyers and sellers sometimes remain anonymous, so you won't know whether they are individuals or institutions, and order books do not show orders building up in so-called 'dark pools'.