The primary function of an order book is to display tokens’ current buy and sell orders. It can therefore help you make more informed trading decisions. Furthermore, as an order book live-streams the constantly changing supply and demand, it also tells you about support and resistance zones, order imbalances, and even market manipulations.
This lesson covers the basics of both sides of the order book (buy and sell) so you will have one more tool to predict the future prices of a token. You can already open the Huobi Global trading interface to test the information in this lesson for yourself.
Read the following article if you want to learn what an order book is and what it consists of: What is an order book?
The buy side of an order book (demand)
Order books’ buy side contains all buy orders that are not traded yet (‘open’) and are placed below the current market price. The buy side is also known as ‘bid’. When you open a bid, you essentially saying, “I want to own X amount of this token for Y price.” The trade then occurs once your bid matches someone’s sell order.
Now, suppose there is a single massive order or plenty of bids at a specific price level. This so-called ‘buy wall’ can influence the token’s price to the upside because if there are not enough sellers to fill a large bid, bids under that will not be filled either. As such, the price cannot decrease as the previous bid has not been filled with enough sellers, thus creating a ‘short-term’ support level.
The sell side of an order book (supply)
On the other hand, an order book’s sell side contains all sell orders that are not yet traded (‘open’) and are placed above the current market price. The sell side is also called ‘ask’. When you open an ask, you are essentially saying, “I want to sell X amount of this token for Y price.” The trade then occurs once your ask matches someone’s bid.
In this case, a ‘sell wall’ forms when there is a single massive sell order or plenty of smaller orders at a specific price. A sell wall can influence token price to the downside, because if there are not enough sellers to fill a large bid, the bids above that will not be filled either. As such, the price cannot decrease because the previous bid has not been filled with enough buyers, creating a ‘short-term’ resistance level.
Why do buy and sell walls occur?
Buy and sell walls usually occur when large holders (whales) of any token aspire to control the prices in their best interests. To this end, groups of traders and wealthy individuals regularly create buy and sell walls to manipulate the markets.
Note that most buy and sell walls appear in order books only for short periods. Additionally, the orders are not always completely filled — it is common to see buy and sell walls moving up or down, depending on the market’s movements.
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