The Importance Of The Order Book

When it comes to placing a trade, experienced traders know that there’s often more to the equation than just a stock’s price. The size of your order matters, but so does volume and the bid-ask spread.

Together, these data points provide a real-time picture of how exactly other traders are jockeying for position in and out of a given stock. And all of this information is available in the order book.

What Exactly Is The Order Book?

The order book, or “the book” as it’s referred to, is the real-time list of all the orders on an exchange of a specific stock. This includes the price the orders are being placed at, the number of shares in the order, and (usually) the person placing the order. It also shows the orders in the order in which they were placed.

Because you can see who are placing orders to buy a stock, when they’re placing it, and how much of they want, the order book is one of the best ways to see the real-time supply and demand of a stock.

Below is a short primer on how to interpret this data, using the Last Trades and Top of the Book widgets from the research platform FinanceBoards. The data is from IEX and integrated from Intrinio.

Last Trades

Last trade price is a fairly simple concept to understand in that it is exactly the most recent price paid for a stock as well as the number of shares in an executed trade. While this sounds simple, knowing these prices and volumes on a real-time basis can indicate broader trends about the timing and size of other trader’s positions.

If you’re looking for a place to learn more about FinanceBoards and how to use the platform, FinanceBoards holds weekly webinars Thursdays at 4:30 ET.

Below are two illustrations on the output of these figures through on General Motors Company GM.

As you can see, in addition to price, the table-version of the widget displays information on the volume of shares bought. Recognizing larger orders, particularly if they come at a constant clip with similar directional price trends, can be a hint that there might be a coming surplus or dearth in shares, signaling a potential price movement. The price trend itself is better illustrated in the chart version to the right.

While what you may glean from the information will vary based on your trading preferences, the information is infinitely impactful in terms of gauging other traders’ position on a stock.

Book Price

However, knowing what people are paying is only half of the picture. Getting a sense of the range of price traders are shelling out for shares can provide perspective on the disparity between what people think a stock’s shares are worth and what the going price actually is. This is the bid-ask spread.

To learn more about the Intrinio IEX Real-Time Stock Prices Widgets on FinanceBoards, check out their Widget Spotlight Series.

The table and chart pictures below show the low bid offer among buyers and the asking price among sellers on GM. Again, the table version of the widget also offers a glimpse at the volume involved in each book entry, but in this case, the chart version allows a better sense of the directionality of price trend, either toward buyers or sellers.

By taking advantage of info on the most recent trade price, and knowing whether the price is being drawn by the buyers or the sellers, tuned-in traders can secure a fairly comprehensive indication of what end of the transaction the market is favoring at any given moment. With some fine tuning and a developed sense of patterns within these individual actions, the up-to-the-minute data on actual trades will be an irreplaceable research tool.

Disclaimer: Financeboards is a sponsored partner with Benzinga. This article was written in conjunction with FinanceBoards, and may have been subject to their approval.