There is an order book for every tradable share on the stock exchange. It contains a lot of important information for investors and is a kind of tool. In this article, you will find out what exactly an order book is, what data you can read and why it is so important for investors.
Order book explanation
The order book is important for investors who trade shares on the stock exchange. It shows all Buy and sell orders for shares. Each share has its own order book. This is used to calculate the price of a share.
Basically, it can be seen as a book that gives investors an overview of the current order situation for a particular trading instrument. Order books are nowadays electronic led.
In addition Limits which indicate the minimum or maximum price investors must pay to receive a share. Securities per order or the Price are included in the order book.
The information in an order book can help investors to view important data and thereby well-founded decisions about possible entries and exits. It is therefore an advantage for every investor to be able to read and understand the order book.
Understanding the order book - Shares order book explained
The Structure of an order book varies. Information on prices, supply and demand, buy side and sell side and a visual representation are normally available:
- Supply and demandThe terms "bid" or "ask" are also often used. Buyers bid for certain financial objects at a certain price
- Price: The value interest of both sides is recorded in an order book
- Visual representationNormally, the information is presented in a table of figures to make the data clearer. Two columns are usually sufficient to show supply and demand. Line charts or other representations may also be included
- Buy side and sell side: Normally both sides are shown, the buy side in green and the sell side in red
The "Bid" column stands for the highest buy offers available per share, usually shown in green. The number of orders available at a certain price is also shown.
The "Ask" column is also called a letter. The sales offers with the lowest prices that are available for sale for a specific company share are displayed here.
The Xetra is an important trading center of the Frankfurt Stock exchange. More than half of all ETFs and Stocks is traded via this trading venue. Trading takes place electronically.
The trading center offers a Publicly accessible order book. The ten most important buy and sell limits are displayed. This data can help to assess short-term price movements of shares. A basic distinction is made between two types of order books:
- Closed order book: These books can only be viewed by certain user groups
- Open order bookOne example is the Xetra order book. All buy and sell orders are publicly visible
There is a Limit control systemwhich constantly checks the limits in the order book for executability. If the bid and ask match, orders are executed.
In the process Limit orders checked. This is an order to buy or sell a security at a certain price limit. In this way, investors have the option of specifying the minimum price at which they wish to sell or the maximum price at which they wish to buy.
Investors have the option, Market orders to be set. These are orders that have no limit and are to be executed at the next point in time and not at a specific price. The focus here is on the rapid execution of the trade.
Conclusion: Order book trading
It is worthwhile for every investor to be able to read and understand an order book. It will Buy and sell orders electronically. The order book provides information on Limitsthe minimum or maximum prices that investors must pay to receive a company share.
Price, visual representations, supply and demand and buy and sell sides are displayed. The bid and ask columns are special. The Xetra trading venue offers a Publicly accessible order book for investors.