What Is the Order Book? (Level 2 Explained)
Michael Whitman
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Trading since 2017, full-time since 2020
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Published 2026-09-06
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Updated
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Reviewed
An order book is the list of every resting buy and sell order in a market, sorted by price. The best bid and best ask are its top two lines, which is the only part an ordinary price chart ever displays, and everything beneath them is the depth behind that quote.
Covered on this page: TradingView.
How it works
An order book is a list. On one side are all the outstanding orders to buy, sorted from the highest price down. On the other are all the orders to sell, sorted from the lowest price up. That is the entire structure.
A trade happens when the two lists touch. Someone agrees to pay what someone else is asking, the matching engine pairs them, and both orders leave the book. Everything else in a market is commentary on that one event.
The gap between the two innermost lines is the spread. It exists because if the best bid ever equaled the best ask, they would have already traded and both would be gone.
A candlestick chart shows one number per moment. It cannot show you that there were 200 shares bid at the best price and 40,000 shares bid two cents lower, and those two situations behave completely differently the instant you try to sell.
Level 1, Level 2 and the queue rule
Level 1 is the best bid, the best ask and the last trade. It is what most retail platforms show by default and what nearly every chart is built from.
Level 2 is the rest of the list — the prices behind the best ones, and the quantity resting at each. The name is a data-feed distinction rather than a concept: it is the same book, shown further down.
Depth is the quantity available at each level. It is a measure of how much can trade before the price has to move, and that is the only question it answers well.
It is not a measure of intent. A resting order is a conditional statement, not a commitment to a view, and the person behind it may be hedging something else entirely.
Orders are matched by price first and time second. A better price always goes ahead. Among orders at the same price, the one that arrived first fills first. That is the whole priority rule on most venues, and it is why a limit order joining a long queue at a popular price may never reach the front.
In practice: walking the book
A market order does not get one price; it gets as many as it needs. It takes the best available level, then the next, then the next, until the quantity is filled. The average of those prices is your fill, and the difference between it and the first price is slippage.
Work an example. 500 shares offered at 100.00, 800 at 100.01, 3,000 at 100.03. A market order for 1,000 shares takes all 500, then 500 of the next, and averages 100.005. A market order for 4,000 takes all 1,300 shares at the first two levels and 2,700 of the third, and averages 100.02225: more than two cents a share above the best offer, against half a cent for the smaller order.
Nothing about the company changed between those two orders. The only variable was size against available depth, which is what makes depth worth looking at before sending anything large.
Resting orders are not promises. They can be canceled at any moment, by software that reacts far faster than a person can. A large bid you are leaning on can be withdrawn between your decision to send an order and your order arriving.
Some size is deliberately hidden. An iceberg order displays a small quantity and refreshes it as it fills, so the visible book understates what is actually there. Hidden and midpoint orders do not display at all.
When it fails
Reading the book as a signal is where it goes wrong. A visible wall of size is visible to every other participant simultaneously, including the ones fast enough to trade in front of it and the ones who placed it with no intention of being filled.
Displayed size is also only part of the market. Between hidden orders and off-exchange venues, much of the trading never shows in an exchange book: 50.63% of US shares traded in September 2026 were reported off exchange, as the stock exchange page measures from Cboe’s venue figures.
And the speed asymmetry is permanent. By the time a human notices a change in depth and acts on it, automated participants have already responded to it several times over. That is not a fixable disadvantage; it is a reason to use the book for a different job.
Spoofing is the version of this that is actually illegal. Placing large orders with no intention of trading them, purely to move other participants, is banned in US markets. On 29 September 2020 the CFTC ordered JPMorgan to pay $920.2 million over spoofing in precious metals and Treasury futures. The relevant consequence for a reader is simpler than the law: a book you are reading for intent can be showing you intent that was manufactured to be read.
The job the book does honestly is a capacity check. Before sending anything of size, it answers whether the quantity you want can trade near the current price, and how far the price has to travel to absorb it. That question has a factual answer, and no amount of speed disadvantage changes it.
The original data
How much size is shown at the top of a real book. This measures the top line only, the best bid and ask and the size at each, not the depth behind them. The listed options market is a good place to look, because one stock or fund has thousands of separate books, one for each strike and expiry. This site saved Cboe’s delayed option quotes for ten underlyings after the 25 September 2026 session (the files are stamped 03:44 on 26 September). Each quote carries the best bid, the best ask and the number of contracts shown at each. Series that expired on 25 September and series without both a bid and an ask are left out, which leaves 57,198 two-sided series.
SPY had the most series showing 500 or more contracts, and its top line was still often thin. Across 12,400 two-sided SPY series, the median size was 20 contracts at the best bid and 37 at the best ask. 52.23% showed fewer than 50 contracts at the best ask, and 25.26% fewer than 10. A standard contract covers 100 shares, so a buyer of 50 contracts in more than half of SPY’s series wanted more than was shown at the best ask. How much sat at the next prices is not in the file.
| Contracts shown at the best ask | SPY series | Share of series |
|---|---|---|
| 1 to 9 | 3,132 | 25.26% |
| 10 to 49 | 3,345 | 26.98% |
| 50 to 99 | 795 | 6.41% |
| 100 to 499 | 3,924 | 31.65% |
| 500 or more | 1,204 | 9.71% |
| All two-sided series | 12,400 | 100% |
The counts add to 12,400; the rounded shares add to 100.01%.
Some single stocks show less. The share of two-sided series with fewer than 50 contracts at the best ask was 85.15% for META, 83.25% for AMD and 76.93% for TSLA, against 43.13% for AMZN, the lowest of the ten. META’s median ask size was 8 contracts. The full list is in the ten-underlying file.
| Underlying | Two-sided series | Median contracts at the best ask | Under 50 at the best ask |
|---|---|---|---|
| META | 6,429 | 8 | 85.15% |
| AMD | 5,700 | 14 | 83.25% |
| TSLA | 4,720 | 18 | 76.93% |
| QQQ | 11,046 | 10 | 70.64% |
| IWM | 5,005 | 13 | 69.13% |
| NVDA | 3,367 | 25 | 60.91% |
| AAPL | 2,934 | 21 | 56.17% |
| SPY | 12,400 | 37 | 52.23% |
| MSFT | 3,313 | 49 | 50.23% |
| AMZN | 2,284 | 75.5 | 43.13% |
What these numbers can and cannot say. They are one snapshot, taken after the close, so they show the quotes standing at the end of one day rather than the book during trading. Cboe’s quote file does not say whether the size is one exchange’s or the total across all options exchanges, so treat it as the size this public feed displays. And size at the best price is only the first line; the levels behind it are not in the file.
The spread is the book’s top two lines expressed as a cost. Put a best bid of 99.99 under the 100.00 offer in the example above and the spread is one cent, 0.01% of the price: a buyer who crosses it and sells straight back gives up that cent on every share before the price has moved at all.
The topic is small in the video study. Of the 24,971 trading videos measured for this site, 11 have order book, Level 2, Level two or depth of market in the title, from 8 channels, at a median of 32,038 views.
The question: A large bid sits two cents below. Lean on it?
The honest position on Level 2 is narrow and useful. It tells you what size can trade near the current price right now on the venues you can see. It does not tell you what will happen next, it does not show off-exchange trading, and the depth it shows can disappear before you act on it.
Related
The bid-ask spread is the book’s top two lines and the cost of crossing them. Order types are the different ways of joining or removing from this queue. And market makers are the participants who keep resting orders on both sides of it as a business.
When those resting orders pull back all at once under stress, the danger has its own name: liquidity risk.
Do not read Level 2 for direction. Keep it open for the question it answers well: can this size get out, at something like this price, right now. That is a liquidity question, and the size shown at the best price is often smaller than the order you are thinking of sending.
— Michael Whitman
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