Why order book matters to a first-time founder
An order book shows available demand and supply at different prices, helping traders assess liquidity before placing an order. A thin book can produce a worse execution price than expected. Founders usually meet this concept when managing listed investments, treasury assets or a future public-company share market.
Examples of order book
An exchange shows bids for 500 shares at £9.90 and 800 at £9.80, with offers for 300 shares at £10.00 and 700 at £10.10. A market order to buy 600 shares may fill across both offer prices, so its average cost exceeds £10.00.
Common misunderstanding
In financial markets, an order book is not a company’s backlog of customer orders, although businesses sometimes use the same phrase that way. Displayed orders can be changed or cancelled, so the book is not guaranteed future trading volume. Hidden orders may also mean the visible depth is incomplete.
When to use it
Check the order book before placing a sizeable trade in a less liquid asset. Consider the spread, which is the gap between the best buy and sell prices, and the quantity available at each level. Use appropriate market controls or regulated advice rather than assuming the displayed price covers the entire order.