The term order book is used to describe a listing of buyers and sellers interested in exchanging certain securities. Oftentimes an electronic matching engine is used to determine which transactions can be successfully executed.
An order book is a simple listing of the traders interested in buying and selling securities. The book contains not only a way of identifying the trader, but also the number of shares they are interested in buying or selling as well as the bid and ask prices for the security.
A matching engine is used to pair buyers and sellers. When a bid price is higher than, or equal to, the lowest ask in the open order book the transaction will execute. As new buy and sell orders are received, the book is updated in real time. This is why the book is referred to as the continuous book on the NASDAQ.
Orders to be executed at the opening or closing are maintained in separate books, while the highest and lowest bids are known as the top of a book. The information contained in the order book is of interest to traders since it allows them to understand trading imbalances as well as volume. Dark pools allow participants to hide their trading intentions, since their bid and ask prices do not appear in the order book.
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