Mastering the Cryptocurrency Board: The Complete Guide to Order Books

If you are a trader, you should realize that mastering the cryptocurrency order book (order book) is a crucial skill that can determine your trading success. The screen you see daily on exchanges like Gate.io visualizes the overall market supply and demand balance, and savvy investors interpret this information to predict the next price movements. So, what kind of information is actually hidden within the cryptocurrency order book?

Understanding the Basic Structure of the Order Book (Cryptocurrency Order Book)

The “order book information” displayed on the trading screen is a list of the prices at which traders want to buy and sell, along with the respective quantities. It indicates the liquidity that prevents the market from suddenly changing drastically even during large trades, and the thickness on the chart reflects the real-time balance between buyers and sellers at specific prices.

In the cryptocurrency order book, information is organized by color. Prices shown in red represent sell orders, while those in green indicate buy orders. This setup makes it easy to see pending orders awaiting execution. The quantity (QTY) shows the number of contracts at a specific price, and the numbers in the total column represent the cumulative number of contracts. The platform offers two display options: 0.5 and 1, and you can switch between them by clicking the button in the top right for more detailed information.

How Buy and Sell Orders Influence Price Formation

The primary role of the order book is to assess the market’s buying and selling forces based on order sizes. Generally, larger buy limit orders indicate higher interest in purchasing and can signal an upcoming price increase. Conversely, expanding sell limit orders increase selling pressure, which can push prices downward.

For example, suppose the current best ask price for Bitcoin is $7,045.50, and the best bid price is $7,044.50. To raise the price to $7,046.00, you could buy all 258,951 contracts near the $7,045.50 level, pushing the price to the next level. From this mechanism, it’s clear that the shallower the order book, the easier it is for small amounts of capital to cause significant price movements.

Spread and Large Trades Impacting Price Fluctuations

The second role of reading the order book is to assess the potential for price movement based on the spread—the difference between the best bid and ask prices. When the gap between the best bid and ask is small, it’s easier to find trading counterparts, leading to smoother executions. However, if there is a large gap between two adjacent order prices, caution is needed because a large trade at this point could trigger unexpected significant price swings.

By observing the thickness of the order book combined with price levels, you can somewhat predict the direction of the next swing. The side with fewer orders (thinner side) tends to be more susceptible to price movement in that direction.

Important Cautions When Using Order Book Information

One critical warning is that the depth of the order book only reflects the current number of pending orders waiting to be executed. Since traders frequently cancel orders before they are filled, relying solely on the appearance of the order book makes it extremely difficult to predict trends with certainty.

Furthermore, the cryptocurrency market operates 24/7 and is highly susceptible to sudden news and global market fluctuations. While order book data is valuable, it should be combined with multiple information sources, and traders should always exercise caution in their decision-making. Mastering the order book is key to mastering the market.