Limit Order Books
A limit order book is a record of all outstanding limit orders to buy and sell a specific asset, organized by price and time priority. It serves as the primary tool for price discovery in most modern financial markets, including many cryptocurrency exchanges.
Each entry in the book represents a participant's willingness to trade at a specific price point. When a market order arrives, it is matched against the best available limit orders in the book.
This structure allows participants to manage their execution risk by specifying the maximum or minimum price they are willing to accept. The depth and density of the order book are key indicators of market liquidity.
Analyzing the book's structure helps traders understand the potential resistance and support levels for an asset.