What is an order book?
An order book is a list of trades, either electronic or manual, that an exchange uses to record market interest in a specific security or financial instrument. Shares are normally listed in an order book by volume and by price level.
An order book is updated in real time because it’s an important indicator of the market depth – the amount of trades at any given moment – which is why they are sometimes called a ‘continuous book’.
Order books can also identify the buyers and sellers behind each individual exchange. However, some participants choose to operate in ‘dark pools’, which are batches of hidden trades away from the order book. This makes it difficult to know if the positions are taken being by individuals or institutions.
The opposite of trading in the order book of an exchange is trading off- book, which is when the trade price is agreed directly between two parties. The reporting process for off-book trading is not as rigid as trading directly into an order book and there are fewer time constraints.