The order book shows all pending buy (bid) and sell (ask) orders. The bid-ask spread is the difference between the highest bid and lowest ask — it's the hidden cost of trading.
Stock showing bid $49.95, ask $50.05. Spread = $0.10 or 0.2%. Buying at ask ($50.05) and immediately selling at bid ($49.95) = instant $0.10 loss per share.
Tight spreads (< 0.1%) = liquid stock, low trading cost. Wide spreads (> 1%) = illiquid, expensive to trade. Large-cap stocks have tight spreads; small-caps often have wide ones. The order book reveals supply and demand in real time — understanding it gives you a significant edge as a trader or investor.
Here's what a typical order book looks like for a mid-cap stock trading around $50:
| Buy Orders (Bids) | Shares | Sell Orders (Asks) | Shares | |
|---|---|---|---|---|
| $50.05 | 500 | ← Highest Bid | $50.10 | 200 |
| $50.00 | 1,200 | $50.15 | 800 | |
| $49.95 | 2,000 | $50.20 | 1,500 | |
| $49.90 | 3,500 | $50.25 | 2,000 | |
| $49.85 | 5,000 | $50.30 | 3,000 |
Spread = $50.10 - $50.05 = $0.05 (0.10%). Bid depth at $50 and below: 12,200 shares. Ask depth at $50.15 and above: 7,300 shares.
💡 Pro Tip: Use the Spread as a Filter
Before buying any stock, check the bid-ask spread first. If the spread exceeds 0.5% of the stock price, it's a warning sign that the stock may be too illiquid for your needs. For a $50 stock, that means any spread wider than $0.25 should give you pause. This simple filter can save you from costly mistakes in micro-cap and OTC stocks where getting out can be far harder than getting in.
Calculate Bid-Ask Spread instantly:
Try Position Size Calculator →What does the order book tell you?
The order book shows all pending buy (bid) and sell (ask) orders at different price levels. A thick order book with many orders near the current price suggests strong support/resistance. A thin order book means the price can move sharply on relatively small trades. Day traders use order book data to predict short-term price movements.
What is the bid-ask spread?
The bid-ask spread is the difference between what buyers will pay (bid) and what sellers are asking (ask). For highly liquid stocks like Apple, the spread might be $0.01. For illiquid small caps, it could be $0.50 or more. The spread is a hidden cost of trading — you buy at the ask and sell at the bid.
Can the order book be manipulated?
Yes. "Spoofing" involves placing large fake orders to create the illusion of demand or supply, tricking other traders. These orders are cancelled before execution. Regulators have fined multiple firms for spoofing. In 2020, JPMorgan paid $920 million for spoofing in metals and Treasury markets.