Unit 2 · Level 1 · How Exchanges Work
The order book
The order book is a live list of everyone waiting to buy or sell. Buyers post the highest price they'll pay (bids). Sellers post the lowest price they'll accept (asks). When a bid and an ask meet, a trade happens.
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What this lesson covers
Liquidity: how easy is it to trade?
A market with many buyers and sellers is 'liquid': you can trade instantly at fair prices. In an 'illiquid' market with few participants, your own order can move the price against you. Beginners should stick to liquid markets.
What you get asked
Match the order book term to its meaning
Every chart you'll ever watch is just this book, matching over and over.
Best bid for BTC is $100,000. Best ask is $100,050. What is the spread?
Spread = best ask − best bid. Tight spreads mean a busy, healthy market; wide spreads mean caution.
A market where you can buy or sell instantly without moving the price much is called ___.
Liquidity is invisible when you have it and painful when you don't.
Put a trade in order, from intention to done
The 'price' on every chart is just the latest match from this exact process.
A tiny coin has almost no orders in its book. You try to buy a large amount. What likely happens?
That's slippage in an illiquid market: your buy consumes the cheap asks and fills at worse and worse prices. Big lesson for small coins.
The rest of this unit
Order books, order types, stop-losses, and the silent costs of every trade.