What Is A Combined Bitcoin Order Book? A combined bitcoin order book is an aggregated view of all the buy and sells orders for a particular asset, in this case, Bitcoin, across all exchanges. This is useful for traders who want an overview of the market before making a trade. It can also be used to spot arbitrage opportunities.
What Is Market Depth?
Market depth is a real-time measure of the volume of limited orders. It is one of the important indications of liquidity since it shows the trading platform’s capacity to withstand relatively big market orders without affecting the price.
The deeper the market depth, the less the market effect of a huge market order, and hence the lower the possibility of price manipulation.
For example, Ann intends to purchase 5,000 BTCUSD futures through market order. The best ask prices for exchanges A and B are $9,200. However, the market depths of the two platforms vary.
Exchange A: Ann would need to acquire 1,000 contracts at $9,200, $9,300, $9,400, $9,500, and $9,600 each to complete the 5,000 contracts. In other words, she would pay $5,000 to get 0.532 BTC. When Ann’s purchase is completed, the best offer price will be raised to $9,700.
Exchange B: 10,000 BTCUSD sell orders are available at the best ask price of $9,200. At this price, Ann’s order may be readily completed. In other words, Ann would have to pay $5,000 to get 0.543 BTC. When Ann’s order is completed, the best ask price will still be $9,200.
Ann benefits from cheaper trading costs (more BTC acquired for the same amount of USD) and has less pricing influence on other traders due to higher market depth on exchange B.
Price Vs Orders Vs Trades
What’s the price of bitcoin right now? That’s a loaded question. There is no one price. It depends if you’re a buyer, a seller, or just want to know what prices have been trading recently. In any of those three cases, the price is likely different. Let’s say BTC has been trading near $9500.
If you want to pay $9000, that’s great, but you’re not going to trade. You submit a “limit order” at 9000.00, and your new order crypto gets sent to the “order book.”
Order Book: What Is A Combined Bitcoin Order Book?
Below is a picture of an order book. The orders to buy (“bids”) are on the left side at lower prices, while the orders to sell (“offers”) are on the right side at higher prices. Your 9000 bid is off the screen. It’s so low. But say I want to bid 9540, while you want to sell at 9565.
Those orders appear at the “top” of the best crypto order books because they are the highest price someone wants to bid and the lowest price someone wants to offer. Orders in the order books are “passive” and won’t trade unless someone else enters an “aggressive” order.
How to Read the Order Book
The Order Book displays how many crypto limit orders are currently active at each price level.
Using the BTCUSD contract as an example, the order book contains the following information.
- Last traded price (1) and mark price (2) are the two prices in the middle (2)
- Price: The prices for sell limit orders are shown in red (3), while the prices for purchase limit orders are shown in green (4)
- Quantity: The number of orders placed in USD at each order price.
- Total: The total number of orders from the best bid (ask) price to this price level. The total amount corresponding to the second-best requested price of $9,263.5, for example, is 1,684,065. It is the total of the order quantity at the best ask price (1,483,585), and the order quantity at the second-best ask price (1,483,585). (200,480).
- You may divide the orders into groups of 0.5 USD, 1 USD, 2 USD, or 5 USD.
- You may study the Order Books in further detail by clicking the zoom symbol (5) in the top right corner.
If Ann places a market order to sell 1,000,000 BTCUSD futures, her order will be executed progressively from the best bid price of $9,264 to the third best bid price of $9,262.50. After Ann’s order is completed, the last traded price and good bid price will be adjusted to $9,262.50.
It might trade if an incoming order to buy is at a high enough price (or an order to sell is at a low enough price). The buyer would be the “taker,” and the resting offer to sell would be the “maker.” The above order book shows orders to sell over 14 BTC (column labeled “Total BTC”) at 9565.
If I enter a limit order to pay 9565 for 1 BTC, this will result in a trade. I could also enter a “market order” to buy (no specified price), and I will trade against the lowers offers available in the order book (again, 9565 in this case).
Combined Order Book
Those were the basics and applied to one exchange. A combined order book is when you take several order books from different exchanges and display them in one combined (or consolidated) order book. The example below shows you the best bids and offers from various exchanges.
In this case, there are collectively more orders, more sizes, and better prices than you could get by going to one exchange (and one order book crypto). There are not many places you can find a combined order book.
How to Use the Order Book
As previously stated, you may quickly evaluate the current market depth and estimate the filled price of a market order.
Reading the order books may help determine if the buy or sell side has more momentum. If the order quantity on the buy side is much more than that on the sell side, particularly at the optimal bid/ask price level, it indicates that the buy side has higher momentum and that the BTC price is likely to climb.
Similarly, if the order quantity on the sell side is much higher, it indicates increased sell-side momentum. Of course, since the order book fluctuates in real-time and often drastically, you must regularly watch it to comprehend the subtle price trend.
These images came from CoveTrader, a crypto trading analytics tool aimed at active traders of Bitcoin, Ethereum, and other cryptocurrencies. CoveTrader consolidates information from multiple different exchanges into one highly customizable real-time front-end. Visit trader.covemarkets.com today and take a look!
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A combined bitcoin order book is a single platform that allows users to trade both bitcoins and other digital currencies. The ability to trade multiple digital currencies on a single platform can make it easier for users to find the best prices and execute trades quickly. Thanks for reading!
Disclaimer: The information provided in this article is not investment advice from Cove Markets. Cryptocurrency investment activities are yet to be recognized and protected by the laws in some countries. Cryptocurrencies always contain financial risks.