Crypto Trading 101: How to Read an Exchange Order Book

It takes two to tango in the world of crypto trading, where a dynamic relationship between buyers and sellers is always on display in something called an order book.

To become comfortable reading order books, it is essential to understand four main concepts: bid, ask, amount and price.

This information is displayed on two sides of the order book known as the buy-side and sell-side.

For the purposes of this explanation, we will be using the BTC/USD order book from one of the world's largest cryptocurrency exchanges, Bitfinex.

Simply put, the amount and price per order display the total units of the cryptocurrency looking to be traded and at what price each unit is valued.

Buy walls have an effect on the price of an asset because if the large order cannot be filled, neither can buy orders at a lower bid.

The price will not be able to sink any further since the orders below the wall cannot be executed until the large order is fulfilled - in turn helping the wall act as a short-term support level.

Since the order is rather large compared to what is being offered, the orders at a lower bid cannot be filled until this order is satisfied - creating a buy wall.

If there is a very large sell order unlikely to be filled due to lack of demand at the specified price level, then sell orders at a higher price cannot be executed - therefore making the price level of the wall a short-term resistance.

All in all, the order book gives a trader an opportunity to make more informed decisions based on the buy and sell interest of a particular cryptocurrency.