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Research desk / Market structure

Field guide / 02

Price is a quote. Execution is the reality.

The number on a screen is only the top of an order book. Depth, spread, venue, order type, and volatility determine what a trade can actually cost.

1. What does an order book show?

Short answer: it lists current buy and sell intentions at different prices, not a guarantee that those orders will remain available.

The highest displayed bid is the best visible price a buyer currently offers. The lowest ask is the cheapest visible sell offer. Trades occur when orders cross. Orders can be cancelled quickly, so a deep-looking book can change before your instruction reaches the venue.

Different venues can show different books for the same asset. An aggregator may compare several venues, while a single exchange exposes only its own liquidity. Always identify where execution actually occurs and which fee schedule applies.

2. Spread and depth measure different things.

Short answer: spread is the gap at the top of the book; depth is the amount available across multiple price levels.

A narrow spread can still hide shallow depth. A small market order may execute near the quoted price while a larger one consumes several levels and receives a worse average. Compare the amount you intend to trade with the cumulative size available, not only the first line.

Reported volume is context, not proof of accessible liquidity. Venue concentration, wash-trading concerns, withdrawal restrictions, and fragmented pairs can make headline volume a poor guide to executable size.

3. Slippage is the distance between expectation and fill.

Short answer: slippage increases when the order is large relative to depth, the market moves quickly, or routing is slow.

Estimate slippage before entry and again before exit. A position can be easy to open during calm conditions and difficult to close during a shock. Network congestion and transfer delays can also prevent moving assets to the venue with the best apparent price.

4. Order types trade certainty against control.

  1. Market order: prioritises immediate execution but not the final price.
  2. Limit order: sets the worst acceptable price but may remain unfilled.
  3. Stop instruction: becomes active after a trigger; gaps can still produce a worse fill.
  4. Post-only or maker order: aims to add liquidity but may be cancelled if it would execute immediately.

Names and behaviour vary by venue. Read the venue’s own order documentation and confirm how partial fills, trigger prices, expiry, and fees work.

5. A practical pre-trade note

  • Write down the venue, pair, order type, maximum amount at risk, and exit condition.
  • Check spread and depth in the units you will actually trade.
  • Include trading, withdrawal, conversion, and network costs.
  • Avoid leverage you do not fully understand; liquidation can be rapid and irreversible.
  • Assume the book will be worse during stress than it looks during planning.

Limit: This guide explains mechanics. It is not a forecast, signal, recommendation, or personalised risk limit.