Limit Order Book Reconstruction

Limit order book reconstruction is the process of using raw tick data to recreate the state of an exchange's order matching engine at any given point in time. By starting with a known state and applying a sequence of add, update, and delete messages, an analyst can visualize the depth of liquidity available at different price levels.

This provides a comprehensive view of the buy and sell pressure existing outside of the current best bid and offer. In cryptocurrency markets, this technique is vital for detecting spoofing or layering behaviors that manipulate perceived market depth.

It allows quantitative traders to measure the resilience of the order book against large market orders. Accurate reconstruction is essential for developing models that predict short-term price movements based on order imbalances.