LESSON 3 · NOTES
The Order Book: How Your Order Gets Filled
Every asset always has two prices. Let’s see where they come from and what happens after you hit “Buy.”
Three takeaways
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An asset always has two prices. The price you can buy at and the price you can sell at. The gap between them is called the bid-ask spread.
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The price on the chart is the past. The chart shows the price of the last completed trade. You can’t buy at it anymore — it’s no longer in the book.
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A limit order waits, a market order takes. And they pay the exchange differently: the maker pays less, the taker pays more.
1. What an order book is
The easiest way to picture an order book is as a bulletin board. Some people have posted: selling bitcoin at 79,340, at 79,335, at 79,330. Others the opposite: buying at 79,325, at 79,320. Each line is someone’s listing with two values: price and size. The exchange just sorts them. There’s one difference from a bulletin board, but it’s an important one: nobody has to call anyone and negotiate. As soon as two prices meet, the trade goes through on its own, instantly. The exchange doesn’t set the price. It puts what participants bring into a table and matches opposing orders. Everything you see as “the market” on a given venue is its order book.
The cheapest offer to sell and the highest bid to buy. Between them is a zone where nobody stands.
2. Why there are two prices
If you want to buy right now, you’ll pay 79,330 — the best that sellers are offering. If you want to sell right now, you’ll get 79,325 — the best that buyers are offering. One second, one exchange, one asset — and two different prices. Meanwhile the chart shows a third one: the price of the last trade, which has already happened.
The exchange doesn’t set the price. It puts what participants bring into a table.
3. Two order types
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Limit. You name the price. Your order becomes a new line in the book and waits for a counterparty. You choose the price, but execution isn’t guaranteed.
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Market. You buy right now at the best available price. The exchange takes the top order from the book and fills you against it. Execution is instant, but you didn’t choose the price.
4. Maker and taker
Whoever places an order and waits adds a line to the book — that’s the maker, who makes the book thicker. Whoever eats that order removes the line — that’s the taker. A thick book is good for the exchange: the more orders in it, the more attractive the venue. That’s why the maker fee is lower than the taker fee, and on some exchanges makers even get paid a rebate.
5. What happens to a large order
The best order might hold only 0.08 BTC. If you need more, one line won’t be enough: the exchange will eat the first, then the second, then the third — each at a worse price than the last. In the example above, buying 0.65 BTC with a market order fills at an average price of about 79,336, not the 79,330 you were looking at. This is called slippage, and in arbitrage it’s one of the key factors.
Terms
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Bid and ask — The best buy price and the best sell price in the order book.
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Bid-ask spread — The gap between the best bid and the best ask within one exchange. Not to be confused with the spread between exchanges.
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Order book depth — How much volume is sitting in orders. The deeper the book, the less your trade moves the price.
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Maker — Someone who places a limit order and adds liquidity. Lower fee.
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Taker — Someone who fills someone else’s order and removes liquidity. Higher fee.
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Slippage — The difference between the expected price and the average price you actually got filled at.
Check yourself
The chart shows 79,330. At what price will you buy with a market order?
At the best sell price in the order book, which may differ from the chart. The chart shows the last trade, not what’s on offer right now.
Why is the maker fee lower?
Because the maker adds an order to the book and makes the venue more liquid. That benefits the exchange, so it rewards this behavior with a lower fee.
When is a limit order better than a market order?
When price matters more to you than speed: you pay a lower fee and avoid slippage. But the order may not get filled at all.
Next lesson: spot, futures and perps — three different instruments on the same asset and, accordingly, three different prices for it. Trade breakdowns and what’s happening in the market — on our Telegram channel @arbiq_ai · t.me/arbiq_ai
This material is for educational purposes only and is not investment advice. You make all trading decisions on your own and at your own risk.