Order Book
Behind every LTP is a ladder of resting orders. The order book shows how much can trade at each price before the market has to move, which is the only honest definition of liquidity.
In short: the order book is the exchange’s continuously updated list of all unexecuted limit orders in a contract, arranged by price with buys (bids) below and sells (asks) above. NSE matches incoming orders against it by price-time priority. The market depth window on a trading terminal shows the best five bid and ask prices with the quantity and number of orders at each, which is the part of the book retail traders see. The gap between the best bid and best ask is the spread; the quantity behind each level is what an order can take before the price moves.
The intuition
Think of the book as two queues facing each other. On the left, buyers line up at the prices they are willing to pay, best price at the front. On the right, sellers line up at the prices they will accept, lowest at the front. A trade happens only when someone at the front of one queue agrees to the price at the front of the other. The last traded price is simply the last such meeting; it tells you nothing about how much is queued behind it. The order book does.
For an options trader this changes the question from “what is the price?” to “what is the price for my size?”. A strike showing 100.00 on the ask with 65 units behind it is a different market from one with 6,500 units behind it, even though the chain shows the same number.
How NSE organises it
- Regular lot book: all ordinary limit orders, sorted by price and then by time of entry. This is the book that market depth displays.
- Stop-loss book: SL orders waiting for their trigger; when triggered they move into the regular book with the trigger time as their timestamp.
- Priority: a better price always ranks ahead; at the same price, the earlier order ranks ahead. Modifying an order’s price or increasing its quantity resets its time priority.
- Depth display: the best five levels on each side, with total quantity and number of orders per level. Orders beyond the fifth level exist but are not shown to most retail terminals.
Formula
Spread = best ask − best bid
Average fill price for a buy of Q units = Σ(pricei × quantity taken at level i) ÷ Q, walking up the ask levels until Q is filled
Slippage = average fill price − best ask at the moment of entry
Worked example (illustrative depth)
Suppose NIFTY is at 24,000 and the 24,300 call shows this ask side, lot 65:
| Ask price | Quantity | Orders | Cumulative |
|---|---|---|---|
| 60.00 | 195 | 2 | 195 |
| 60.25 | 130 | 1 | 325 |
| 60.50 | 650 | 4 | 975 |
| 60.75 | 325 | 3 | 1,300 |
| 61.00 | 1,300 | 6 | 2,600 |
A market buy of 10 lots (650 units) takes 195 at 60.00, 130 at 60.25 and 325 at 60.50: average 60.30, slippage ₹0.30 a unit, ₹195 on the order. A market buy of 30 lots (1,950 units) walks to 61.00 and averages about 60.72, slippage ₹0.72 a unit, ₹1,404 on the order, and leaves the best ask at 61.00 for everyone else. A limit buy at 60.00 for 30 lots fills 195 units and rests the remaining 1,755 as the new best bid, if 60.00 is above the previous bid.
Why it matters
- It is the real liquidity measure. Open interest says how many contracts exist; depth says how many can be traded now without moving the price.
- It sets the limit price. A limit order at the best ask fills now; one inside the spread fills only if someone comes to it. The book shows which is realistic.
- It exposes thin strikes. Far OTM and deep ITM strikes often show one or two orders per level; a modest order moves them, which is why their LTP can look stale or erratic.
- Large resting orders are information, not promises. A 5,000-unit bid can be cancelled the instant the market approaches it.
Common mistakes
- Reading total bid quantity versus total ask quantity as a direction call. Resting size is mostly market-maker inventory and is cancelled or re-quoted continuously.
- Judging a strike’s liquidity by LTP alone. A print from twenty minutes ago is not a tradeable price.
- Ignoring the number-of-orders column. 1,300 units in one order is a different book from 1,300 units in twenty orders.
- Forgetting that modifying an order resets its queue position.
Indian specifics
NSE disseminates the best five levels to retail terminals; deeper data is available through paid feeds. The tick size for index and stock options is ₹0.05. Index option strikes near the money typically show several thousand units per level during the session, while stock option strikes can show a single lot. The freeze quantity caps the largest single order that can appear in the book, and the dynamic price band limits how far from the reference price an order may rest. Pre-open sessions on NSE use a call auction rather than the continuous book, so depth during the pre-open shows indicative matching rather than live trades.
FAQ
What is the order book in trading?
The live list of resting buy and sell limit orders at each price, matched by price-time priority; market depth shows its top five levels.
What does market depth show on NSE?
The best five bid and ask levels with quantity and order count at each.
Does a large bid quantity in the order book mean the price will rise?
No. Resting size is mostly quotes that can be cancelled; depth measures liquidity, not direction.
How is the order book different from open interest?
The book is untraded orders; open interest is contracts already traded and still open.
Depth is one input; the chain is the rest
TradePulse puts open interest, OI change, volume, IV and Greeks beside every strike, with the Builtup column classifying positioning, so size can be judged against structure, not just the top of book.
Related terms
- Limit order, what rests in the book
- Bid-ask spread, the gap at the top of the book
- Open interest, positions, not orders
- Freeze quantity, largest single order allowed
- Circuit limit, how far from reference an order may rest
- OI vs volume, the other liquidity measures