Overview
The order book is the foundation of all trading activity on a cryptocurrency exchange. It records all open buy and sell orders at different price levels and determines how trades are executed. Understanding how the multi-level order book works helps traders make informed decisions, recognize liquidity depth, and anticipate how their orders interact with the market.
As we introduce Limit Order functionality, having a clear understanding of the multi-level order book becomes even more essential for optimizing entry, exit, and execution efficiency.
What Is a Multi-Level Order Book?
An order book lists all active buy (bid) and sell (ask) orders for a trading pair, organized by price. At every price level, there is a certain amount of liquidity available.
A multi-level order book typically contains:
- Bid Levels: Prices buyers are willing to pay
- Ask Levels: Prices sellers are willing to accept
- Depth: The quantity available at each price level
- Mid Price: The midpoint between the best bid and best ask
This structure shows the real-time supply and demand dynamics for a trading pair.
Together, these form the multi-level order book, which displays prices from the best available level at the top, followed by additional levels below it. The top level shows the highest bid and lowest ask, while deeper levels show more prices and liquidity.
How Orders Interact With Multiple Levels During Execution
When any order interacts with the market, it engages with the order book differently based on the order type. Understanding this helps users see how their order may fill across several price levels and why execution prices may vary.
Market Orders
A market order aims to execute immediately.
The system starts matching the order with the best available price and continues filling it through deeper levels if the liquidity at one level is not enough.
Limit Orders
Limit orders do not move through multiple levels unless the user sets a price that crosses the current best level.
There are two scenarios:
1. Passive Limit Orders (limit price is not reachable yet)
The user sets a price that cannot be matched immediately.
Example:
• Best Ask: 100
• User’s Limit Buy: 98
The order sits in the order book and waits for the market to move to that price.
It only interacts with one level, the exact level the user chooses.
2. Aggressive Limit Orders (limit price can be matched immediately)
The user sets a price equal to or higher than the best ask (for buys) or equal to or lower than the best bid (for sells).
In this case, the limit order behaves like a market order and:
- Fills immediately
- Matches through multiple levels if liquidity at one level is insufficient
- May result in partial fills at different price tiers
Why the Multi-Level Order Book Matters
1. Transparency: Traders gain full visibility into available prices across different market participants.
2. Better Execution Planning: Depth helps traders decide order size and type to minimize slippage.
3. Liquidity Awareness: Seeing where large buy/sell walls may appear helps traders anticipate moves and manage risk.
Risk Warning:
Trading in cryptocurrency involves risk and potential losses. Before trading, please make your investment decisions cautiously by considering your investment objectives, experience, and risk tolerance. You are solely responsible for your investment decisions, and Flipster is not liable for any losses you may incur. Derivatives trading, in particular, is subject to high market risk and price volatility. Please obtain independent advice where appropriate. This information should not be construed as financial or investment advice.