Order a book: How to read and use it?

The order book Sumarizes in real time the status of supply and demand for financial security (for example shares). It is therefore a practical tool to analyze before entering the exchange command. In this article we balance!

The book of orders takes the form of a Inventory of all gathered orders on the stock market on the same security. Provides interesting information before entering the command on the stock exchange you want to make.

What form is it?

Orders book is a virtual inventory that is first divided into 2 parts:

1. Orders on the left side: You will find information about shopping orders entered by investors waiting to be performed. They are sorted from the highest to the lowest price.
2. Selling orders on the right : This is information about the selling instructions for investors who want to sell their securities. They are sorted from the lowest price to the highest.

Orders book generally has 5 lines for purchasing orders and 5 lines for sales orders. It is also possible to have 10-line versions, depending on the stock market you use.

For example, take a book of Fortuneo orders for LVMH shares:

The first line should be read as follows:

• Currently there is 1 shopping order for LVMH shares in quantity of 14 shares for the price of EUR 859.2 per share
• On the other hand, there are 6 sales orders for LVMH shares, in a total number of 37 shares, for the price of EUR 859.3 per share.

All these events are in the expectation that the supply will encounter demand.

The book of orders thus provides valuable information about Value liquidity. The greater the number of orders recorded in the book, the easier it will be to buy or sell security. In this case, we say that the asset is liquid.

Analysis of supply and demand

The book of orders compares the supply and demand of the same shares (or bonds, or derivatives, etc.). All listed lines of order books await (purchase or sale). These are limit orders for which the price threshold is set. The orders entered on the market are performed directly, so they do not appear in the book of commands.

If we return to our example of LVMH:

Let’s look at the first line. This tells us that there are 5 orders entered by investors from a total of 47 securities. They are ready to buy them worth 860.00 euros. 11 orders of the seller were placed on the right. They are ready to say goodbye to 94 titles for the price of € 860.20.

➡️ Securities are sold or purchased only if the purchase price at a given time drops to the same value as the selling price t.

Regarding the supply and demand, knowledge of the first 5 or 10 lines of the order book is a good indicator for choosing a sales or purchase price of your securities. Especially if you want your order to be made quickly. We continue our example of LVMH, if you decide to buy these shares for less than EUR 859.10, you know that there are 86 orders in front of you, a total of 1,043 shares.

On the other hand, if you want to sell your shares for EUR 860.30, you only have 11 orders for a number of 94 shares. So your order has a great chance of execution.

Therefore, understanding of the book book allows you to set up a price, especially if you want to maximize your chances to make an order.

You can also enter a market order and then necessarily done. If you want to buy 100 LVMH shares, the following logic will apply:

• Will be purchased 94 shares for the price of € 860.20
• There will then be 6 shares for the price of 860.30 euros
• The book book will then remain 53 shares (= 59 – 6) shares for the price of EUR 860.30.

The commands are made on the principle of “Whoever comes before is before”.

List of last transactions: Another source of information

Assess the level of liquidity and direction of financial security up or downYou can also view the list of recent transactions.

When you stick to our example, you will see that 29 LVMH shares were traded for the same price of EUR 858.40 in 5 transactions at 15:35:31. As you can imagine, LVMH shares are widely traded on financial markets.

Different “orders” in the book book

The book of orders states only limit orders. The principle is simple. The order is only made if the price specified in the order is reached. On the other hand, it may never be done if you require too low the market price for a purchase order or too high price for the order for sale.

There are also market orders, also called at the best available pricedirectly made. These are not seen in the book book as well as thresholds (or commands stop loss) and trigger commands.

Why is a book book on the stock exchange?

Orders book is a useful tool for investors because it allows them to:

• Have a clear overview of the offer and demand in real time
• Place orders on small caps. The fact that there is a low liquidity and a small volume allows you to see if the order sets several lines or not.

What is the validity of the order?

For most reputable brokers, you can choose the order time. In general, there are options:

• At the end of the period (day, week, month, etc.). The order will be downloaded at the end of the deadline.
• To the given date : You can state the date on which the order remains valid.
• Until (Good ‘Til Canceled, GTC): The order remains in force until you take it manually.

Frequently asked questions