How to read the order book: walls, icebergs and liquidations

The order book, also called the DOM or depth of market, is the list of limit orders currently resting at each price to buy and to sell. To read the order book, check it against the tape of actual trades: an order that keeps getting traded against and refills is real, and one pulled before price arrives was there for show. On its own, the book doesn't tell you where price will go.

Almost everyone who trades intraday starts out trusting the book too much: a big order looks like a level, and a minute later it's gone. It also works the other way: the book shows 12 BTC, yet 36 BTC trades at that price, three times as much.

How the order book works: bid, ask and spread

Each row is a price and the size resting there. Sellers sit above, buyers below. The best bid and best ask meet in the middle, and the gap between them is the spread.

A limit order sits in the book and waits. A market order eats through it: a market buy takes sellers' size from the best price up, and if that level runs out, it moves on to the next rows. Whoever sends the market order is the aggressor, and pays the spread for getting in right away.

That leads to the main rule. The book shows intentions, while the tape (time and sales) shows what has actually happened. An intention can be pulled in a fraction of a second. A trade can't be undone.

Order book walls: which large orders to trust

Traders call a large resting order a wall or a density, and you judge one by what gets filled against it: size alone proves nothing. Sometimes it's there because someone really wants to buy or sell size, and it stays while the market trades into it. Sometimes it's there for show and gets pulled as price comes close, which is called spoofing. And sometimes it's the reverse: the book shows a small order, but far more trades against it because the visible part refills after every hit. That's an iceberg.

You can't tell these apart from the book alone. Watch what gets filled:

• price arrives, heavy selling hits the level, and the order holds and refills: the buyer is real;
• the order vanishes before anyone trades against it: it was never worth relying on.

A level that price bounces off several times in a row deserves its own note. You only see that kind of wall over time, in how the market keeps running into it.

Where trades have already happened, and how much traded at each price, is what a volume profile shows. It records trades that already happened, so the profile and the book are worth watching together.

What is an iceberg order: an example in numbers

An iceberg order is a large order with only part of it visible in the book. Each time the visible part fills, it's topped up from a hidden reserve. That's done either by the trader's algorithm or by the exchange itself, if it offers the order type: on Binance, for example, an iceberg order splits a large order into smaller ones and places the next once the previous one fills (Binance help on iceberg orders). A made-up example. At 64,000 the book shows 12 BTC bid. Over three minutes, aggressive sellers hit that price for 36 BTC, yet the visible size stays around 12 the whole time.

Three times the visible size traded and the level held. That's what a hidden buyer looks like. It's still an estimate rather than knowledge: exchanges don't reveal other people's orders, so the conclusion comes from the tape and the book. A hidden buyer can leave the next second, just like a visible one.

Order book skew

Skew is the imbalance between bid and ask size near the price. If there are 300 BTC bid and 200 BTC offered within a few ticks of the middle, the skew is (300 − 200) ÷ (300 + 200) = +20% in favour of buyers.

It's a useful number, but an easy one to fake: place a couple of big orders, then pull them. So skew on its own isn't a signal. It means something when the tape agrees, for example when the book leans to the bid and aggressive buying is actually coming through.

Liquidations on futures

On futures, the exchange force-closes a position when there isn't enough margin behind it (Binance explains how liquidation works). A long liquidation is a market sell and a short liquidation is a market buy. When many hit in a row, they push price themselves and knock out the next batch, which is how you get long candles with no news behind them. A large liquidation at a level can mean that part of the move came from other traders' margin calls rather than from new buyers or sellers.

Is there an order book in forex

Forex trades over the counter, so there is no central order book. The DOM in MetaTrader 5 at a forex or CFD broker usually shows the broker's liquidity providers, and not every broker provides one. Chart volume there is tick volume, the number of quote changes per bar. If the instrument is exchange traded, the broker may pass through the real exchange book.

The order book is best learned on an exchange. A forex broker's DOM is a hint at the prices you could buy or sell at right now, but icebergs and walls in the usual sense don't exist there.

The order book in Pulse Terminal

Pulse Terminal is a trading terminal for Windows, and its DOM opens with the "DOM" button in the chart header: the book appears as a strip to the right of the price scale. In the on-axis view the rows follow the chart's own scale, so a large order sits at the same height as the candles. The other view is a ladder with its own scale around the price.

The wide DOM shows several things at once:

• spread, row step and book skew near the price, in the header;
• ◇ and ◆ marks at levels that traded more than they showed: ◇ looks like an iceberg, ◆ like a wall, with a ×N count next to it;
• liquidation triangles at the left edge: ▼ longs liquidated, ▲ shorts;
• the "cluster" column: aggressor volume at each price, since the DOM was opened or for the current candle;
• the trade tape, where a buy is a filled circle and a sell is a ring.

In "DOM settings" you choose the liquidation threshold (all, $10K, $50K, $100K or $500K), turn on "Icebergs and walls" and set how the "Cluster" column builds up: "since open" or "per candle". On a crypto exchange the same window picks the book source: "As the window", "Futures" or "Spot". That's handy when your chart is on the perpetual but you want to watch large orders on spot for the same coin.

The "Heatmap" button adds the book's recent history between the price scale and the DOM: where liquidity sat and how much of it, over the last few minutes. On the heatmap you can see which large order stood for half an hour and which one disappeared right at the price. It only collects while it's open, because the book isn't stored in history.

With a MetaTrader 5 broker, the DOM header names the source: showcase or touches. Touches are levels calculated from quote touches over the last hour, not orders. If there is no book at all, rows follow the price without size.

What the Pulse DOM doesn't do

In this version the DOM only displays the book: clicking a row doesn't place an order. Orders go from the chart and the trading module, with stop and target lines and size from risk. If you scalp by clicking the DOM, it's better to know that before you install. What else to check is listed in the article on choosing a trading platform.

The Backtest has no past order book: the DOM follows historical prices without size, and there are no liquidations, icebergs or heatmap. You can still look at volume by price inside each candle on history: the Footprint chart type builds in Backtest from trades you've downloaded in advance.

Where to start with order book trading

Open the DOM and the heatmap on a liquid perpetual and spend half an hour just watching, without trading. Note which large orders held until price arrived, which ones vanished, and what the tape was doing whenever a level held. That's enough for a first session. Trading off the book, scalping included, makes sense once you can reliably tell an order that gets traded against from one that was placed for show.

FAQ

What is an order book, in plain terms?

It's a table of orders: at each price you see how much people want to buy and how much they want to sell right now. Sellers are on top, buyers below, with the spread between them. Market orders never sit in the book: they fill at once, and you see them on the tape.

Can the order book tell you where price will go?

No. The book shows intentions, and those can be pulled in a fraction of a second. The book and the tape together say more: a level that keeps absorbing aggressive orders while the order on it refills. Even that is only an estimate.

What's the difference between the order book and the tape?

The book holds orders waiting to fill. The tape (time and sales) lists trades that already happened: price, size and which side was the aggressor. A trade can't be undone, so the tape is the more trustworthy of the two.

Do crypto exchanges have an order book?

Yes, and on a crypto exchange it's real: the book holds participants' orders and the tape shows their trades. Futures add liquidations on top. Spot and futures for the same coin have separate books.