Intro
In this post i am going to share my idea and knowledge on order book of exchange or trading.
Source: Image by Csaba Nagy from Pixabay
1. What is meant by order book and how crypto order book differs from other local market
Order book is a very important tool in trading market. Order book is a book or a collection of data where the price of any product is being provided are shown. For example, if we want to purchase anything we must look at the lowest prices of sellers are offering. Similarly, if we want to sell something we will look for the highest price offered by the buyers. So, in buying and selling market there will be e number of selling orders at specified prices and number of buying orders at specified prices. If someone wants to buy something at any specified price of any specific volume then the collection of all the data of sellers and buyers are basically arranged in a place which we can call the order book. It is nothing different from the normal order book in our day-to-day life except some special features. Crypto order book has some special features like there will be a pair of cryptocurrencies and the order book is basically for a specific pair under specific volume of cryptocurrency. Cryptocurrency order book is a a exchange order book where any specific currency with other currency will be exchanged at certain price which will be specified according to the price of buyer and seller in the order book. But in normal cases like when someone wants to buy some grocery item from the market then he will look for the lowest price and the sailors is offering the same grocery item at different prices. For example, no price for high volume of purchase. So if you collect all the data of the sellers and buyers wants to trade in a place left inside and right inside then it will be a order book similar to the order book of cryptocurrency exchange.
2. How to find order book in any exchange
As i have mentioned above that exchange book is a integral part of exchange. Let me explain some terms with screenshot example to make it clear.
Pairs
When its matter of exchange through order book there should have two parties like buyer and seller. In our daily example there is a single commodity is being purchased and sold by two parties. In crypto or other exchange, its not exactly like that. Its not about single commodity. There should have two parties by they will trade one for another. So, its called pair. Here, you must need two currency and there will be trade in between two. For example, Hive and Steem. Someone is buying steem for hive, on the other hand second party is selling steem for hive. In this way pair is must in trading or order book.
You can see Hive and Swap.Steem in the screenshot from my HiveEngine exchange. This two are pair. One to buy or sell for another following order book.
Support and Resistance
When any downward trend pause due to pressure of excessive selling for a period of time in the trading chart, then its support. And when upward trend pause due to excessive buying by the buyers is resistance. In any of the trading pair chart we can easily find such kind of situation resistance and support again and again.
Source
In the following picture, you can see support and resistance real example from my exchange wallet. We need to know these terms to understand order book and trading through it better.
Limit Order
Limit order means when you set any specific limit of price while placing selling and buying order. For example price is now high and you want to buy at less then you can place order at low price for buying. Your order will be in the order book and will be executed if or when price reach to this low price. Similarly it works for high price setting in limit by the order book when selling, can be happen in example.
In the screenshot you can see price 1.18533 which is less than highest bid, so it will be executed immediately. As its limit is at this price, then it will be traded only when price reach to this limit with the specified volume amount. Similarly, you can see, 1.29777 hive per swap.steem in the box which is higher than lowest ask price. So, it will be traded at this price limit. That is limit order.
Market Order
Market order is one kind of spot trading. If this order is placed then currency will be immediately traded at running market price. This is how its differ from Limit order. If buyer use lowest ask price, and seller use highest bid price then it will be immediately traded if volume of currency is available in the order book. This is spot or market order. So, now its very clear how its differ from limit order.
3. Important features of order book
Here in the following picture, you can see my trading from verified hive-engine exchange. Here i have chosen Hive and swap.steem as a pair. I have denoted the features of order book by numbers in the screenshot. Now i am explaining the numbers in brief.
- 1,2 = Indicating buy and sell of what currency that is swap.steem and this selling and buying will be with hive.
- 3,4 = The Price, Quantity and Total of sell (ask) and buy (bid) orders.
- 5,6 = The unit of pair That is hive per swap.steem.
- 7,8 = Lowest ask and highest bid along with available balance.
- 9,10 = Buy and Sell Order. This is the main part of the order book. You can see a number of sell order and number of buy orders. The orders has been arranged according to highest bid and lowest ask sequentially. So, highest bid and lowest ask price is the market order price. and rest are the limit order price in both case of buying and selling.
- 11 = My verified id
4. How to place Buy and Sell orders in Stop-limit trade
Placing order is pretty simple in a exchange while trading. You just need to fix your price for buying and selling, then you can place with that price and volume amount to execute the order. If you wants to buy at lowest ask then its will be instant otherwise will take time to reach to that price when price is even less than the lowest ask. Similarly its applicable for selling as well. I am explaining it with real example of buy and sell.
Buy Order
In following screenshot you can see lowest ask is 1.29421 but i am placing buy order at 1.25 which is even less than the lowest ask. So, the trading will happen only when price will reach to this level. I have chosen quantiy is 20 swap.steem, hence, total required hive is 25 at the price of 1.25 hive/swap.steem.
Now, its to confirm the order by rechecking.
Sell Order
For selling, highest bid is important (at which someone wants to buy). Here highest bid is 1.18540. If we place order below this or at this, then it will be traded immediately as market order. But if we place price beyond the highest bid then, it will take time to reach that level. By placing the price its super easy to confirm the order like buying which i have mentioned in the screenshot above.
5. How order book help in trading to gain profit and protect from loss
From above discussion now, its very well and clear that what price we need to set for trading. If there were no order book then we would not get the information of price. From order book we can easily check what is the buying price and selling price. We can also check how many buyers and sellers with how much volume to trade. This is really important because if we only look at price, then its not sufficient as we may not find required amount to trade due lack of volume in the order. So, its really helpful for traders. We can easily understand what's the trend going on for any specific pair. We can have idea about support and resistance from here as well from last trading data in the candle chart of order book.
Below the order book, we can also check the information some recent trade data. So, overall, Order book is the compulsory tool for a trader weather he/she is going to buy or sell any specific currency. For minimizing loss or gaining more we can use the data of order book and can place limit, market order. So, our prediction going to be in the right path with the help of order book as its suggesting us the trend.
Conclusion
Thank you very much for stopping by.
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