How to Read a Stock Order Book: Prices, Depth, and Execution
Buy and sell quantities in an order book are not completed trades. Connect best quotes, cumulative depth, and trade records to assess execution prices and the risk of an unfilled order.
An order book shows the prices and quantities of pending buy and sell orders at a particular moment. Start by distinguishing those orders from completed trades, then work outward from the best available price to see how much resting quantity can fill your order.
Buyers and sellers face different prices
An immediate buyer encounters sell orders starting with the lowest ask, while an immediate seller encounters buy orders starting with the highest bid. The displayed last price is the most recent execution price, so it may differ from the price available to you now. Apps can arrange and color their order books differently. Check the buy and sell labels rather than memorizing colors. Order units and tick sizes also vary by price range or market, so confirm in the order ticket that the price you enter is permitted.
Distinguish one price level from cumulative depth
A buy order larger than the quantity at the best ask may reach orders at higher prices, raising the average execution price. A limit order, by contrast, may fill only partly within its price boundary, leaving the remainder pending. Cumulative quantity within your acceptable price range is therefore more useful in practice than simply comparing total bid and ask quantities. Other investors can trade or cancel orders before and after you submit yours, however, so the current screen cannot serve as an exact execution forecast.
Do not treat a large bid as a guaranteed support level
Even a large displayed buy quantity can be canceled or repriced before execution. The screen alone also cannot reveal the investment objective behind it. That is why it helps to examine actual trading over a period and, where the data allow, distinguish quantities removed by execution from those removed by cancellation. A screen showing one exchange's order book also differs in coverage from one consolidating several exchanges. Do not directly apply the multiple-venue structure described in U.S. order-execution materials to a specific Korean trading screen. Recording both the quote observation time and the actual order time helps you review differences between expectations and execution. Before attributing a discrepancy to a trading-system error based on a single pre-order screenshot, compare execution times, prices by quantity, and order type. If the order filled in several trades, calculate the overall volume-weighted average execution price rather than focusing only on the worst fill, and assess whether it stayed within your planned price range.
Worked example
Hypothetical example: Suppose 100 shares are offered at KRW 10,000 and 200 at KRW 10,010. If quotes remain unchanged and there are no other orders, an immediate purchase of 250 shares fills 100 at KRW 10,000 and 150 at KRW 10,010, for an average of KRW 10,006. That is KRW 6 above the displayed best ask. The calculation excludes fees and orders on other markets.
What to check
- Have you distinguished the last price from the best quote on the opposite side?
- Have you checked the cumulative depth needed for your quantity?
- Have you avoided interpreting every reduction in resting quantity as an execution?
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.