Be honest. When you decided to enter the crypto world, were you scared the first days when you found all that immensity of unknown words, concepts, topics and opinions that we had never heard or read? I do. It seemed like a world exclusively for nerds, nuts, and computer and finance experts.
But when the first days passed, I realized that each crypto word or concept were simpler and more frequent in our daily life than I thought, I just did not know them by the same name, and even I used them without realizing it.
A particular example are the Order Books, throughout my life I have been in one of these books without being aware of it, so here I will try to explain in a practical way what these nice little books are about in the crypto field.
What is an Order Book
The term Order Book simply refers to a list of buy and sell orders, organized by order price and volume. Let's first look at its basic properties to understand it better:
- Negotiation item: It can be anything that has value for a group of people: Tomatoes, cars, artworks, gold, cryptocurrencies!
- Order type: Buy (Bid) and Sell (Ask). In some exchanges they may have more specific names or variants.
- Price: Expressed numerically in another negotiation item, usually currencies or cryptos.
- Size: The quantity expressed in the unit of measure of the bargaining item, such as ounces, feet, units, satoshis.
- Volume: Total purchase / sale transactions made. This is one of the most important, since it represents the liquidity of a market.
- Identity: Although many choose to be anonymous, this property helps traders a lot to make better decisions because the transparency of the market gives us valuable information.
How Cryptocurrency Order Books Work
As I said at the beginning of this article, to "make friends" with the Order Books, we must first lose the fear of the enormous amounts of numbers and data, since in essence they are simple components listed in that way for the simple fact that There are many users using them simultaneously, but we can advance on this flow of information by understanding three basic areas:
- Supply or Offer: Sales orders, always in red.
- Demand: Purchase orders, always in green.
- Last Market Order: The last buy or sell transaction made in a recent time range.
Each of these three groups show two pieces of information: price and volume. The combination and analysis of price and volume are necessary to determine two issues: if the market in which we are immersed has liquidity, and to analyze possible trends.
By understanding the Supply, Demand and the Last Market Order, we can already have our first smile in front of an Order Book, and choose which side we are going to be on, review the history of that market, stay updated with the trend, and try to earn a difference speculating on the future by betting on our predictive abilities.
An obvious advantage, but no less important, is that in cryptocurrency Order Books we have the advantage of being able to trade 24 hours a day, every day of the week, with instruments of global and transparent reach.
Order Books are one of the most relevant and quietly used tools today. Keeping them in mind when we analyze cryptos will make us see more broadly all the movements we make, we can really see the trend of a market by looking at the full scale, not just our side.
As always, research, read, learn, enjoy, follow me (the less important one) HERE... and with or without Order Books, be happy!