Overview
An order book is a real-time list of buy and sell orders for an asset, used by centralized and some decentralized exchanges. It shows the depth of liquidity at each price level. Matching engines pair orders to execute trades.
How It Works
Traders place limit orders at specific prices, and the order book aggregates them by price. A market order executes against the best available prices until filled. The book reveals supply and demand, determining current prices and liquidity.
Why It Matters
Order books provide transparent price discovery and are standard in professional trading. DEXs using on-chain or hybrid order books offer an alternative to AMMs. Their liquidity depends on market makers, which is harder to bootstrap in DeFi.
Related Concepts
Order Books contrast with AMMs and Liquidity Pools. They are used by dYdX and other perpetual platforms, and relate to the broader concept of price discovery.