Glossary
Order book
The list of open buy and sell limit orders for a security at each price level, showing market depth.
An order book is a trading venue's live record of every resting limit order in a security: buy orders (bids) ranked from the highest price down and sell orders (asks) ranked from the lowest price up. It is the matching engine's working list. When a new order arrives that can trade against the book, the engine matches it; when it cannot, the order joins the book and waits. The gap between the top bid and the top ask is the spread.
How matching works
Most stock exchanges use price-time priority: the best-priced order trades first, and among orders at the same price, the one that arrived earliest trades first. Market orders and marketable limit orders take liquidity from the book; resting limit orders provide it.
The US book is fragmented
In US stocks there is no single order book. Each of more than a dozen exchanges keeps its own, alternative trading systems keep theirs, and much retail flow never reaches a book at all because wholesalers fill it directly. Routers spread orders across venues, and regulations tie the books together through the national best bid and offer. Many orders in a book are also hidden or partly hidden, so what a depth display shows is only part of the real supply and demand.
Traders who study the book look for imbalances, large resting orders and how quickly levels refill after trading, while knowing that displayed orders can be cancelled in an instant.