Glossary
Order Book
The list of buy and sell orders at each price
An order book displays the buy and sell orders currently in the market, stacked by price. Bids sit below and offers above.
Two things are visible there: the spread between the best bid and offer, and how much volume is waiting at each price level.
Price levels with heavy volume are hard to break through. Many sellers at one price makes it difficult for the share to rise past it, while thin levels move sharply on small trades.
The numbers should not be taken at face value, though. Some orders are placed and withdrawn without any intention to execute, so visible volume may not reflect genuine supply and demand.
For a long-term investor the order book is simply a reference when buying. Checking the spread and available volume in a thinly traded stock before placing a limit order is use enough. Quotes swing wildly before the open and near the close. The order book during those windows reflects real conditions poorly. Unless you are in a hurry, those periods are best avoided.