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Where do buyers and sellers meet?Price, USDTSize, BTC70,003.00.80070,002.00.50070,001.50.20070,001.00.10070,000.00.30069,999.50.60069,999.00.90069,998.01.200Askssellers waitBidsbuyers waitSpread 1.0 USDTBest askBest bidMid 70,000.5
Where do buyersand sellers meet?Askssellers waitPrice, USDTSize, BTC70,003.00.80070,002.00.50070,001.50.20070,001.00.100Best askSpread 1.0 USDTMid 70,000.570,000.00.300Best bid69,999.50.60069,999.00.90069,998.01.200Bidsbuyers wait

Buyers below, sellers above. The gap between them is the spread.

The order book

The order book lists the prices people wait to buy and sell at, and how much waits at each price.

Lesson 1 of 75 min3 parts

Updated . Cryptathon rules checked on .

An order book is the list of buy orders (bids) and sell orders (asks) that wait to trade on one market. The best bid is the highest buy price and the best ask the lowest; the gap is the spread. On Cryptathon a BTC tick is 0.5 USDT, so a 70,000.0 bid and 70,001.0 ask make a two-tick spread.

By the end, you can

  1. 1Find the best bid, best ask, spread and mid price
  2. 2Say which order trades first at a price
  3. 3Compare the depth on each side of the book

1 of 3

What are the bid, the ask and the spread?

The order book is the list of orders that wait to trade on one market. Buy orders, called bids, are on one side. Sell orders, called asks, are on the other. Each line shows a price and how much waits at that price.

The highest bid is the best bid: the most that anyone will pay now. The lowest ask is the best ask: the least that anyone will sell for now. The gap between them is the spread, and the price halfway between them is the mid price.

Prices move in small steps called ticks. On Cryptathon one BTC tick is 0.5 USDT, so every BTC price in the book ends in .0 or .5.

Worked example

Spread and mid price

The BTC book shows asks at 70,001.0, 70,001.5 and 70,002.0, and bids at 70,000.0, 69,999.5 and 69,999.0. Find the spread and the mid price.

  1. 1
    Find the spreadBest ask (the lowest ask) minus best bid (the highest bid).
    70,001.0 − 70,000.0 = 1.0 USDT
  2. 2
    Count the ticks in itThe spread is two ticks of 0.5 USDT.
    1.0 ÷ 0.5 = 2
  3. 3
    Find the mid priceStart at the best bid and add half the spread.
    70,000.0 + 1.0 ÷ 2 = 70,000.5 USDT

AnswerThe spread is 1.0 USDT, which is two ticks. The mid price is 70,000.5.

BTC price, USDT. Each step is one tick, 0.5 USDT69,999.069,999.570,000.070,000.570,001.070,001.570,002.0Best bidBest askMid 70,000.5Spread: 70,001.0 − 70,000.0 = 1.0 USDT
BTC price, USDT.Each step is one tick, 0.5 USDT69,999.570,000.070,000.570,001.070,001.5Best bidBest askMid 70,000.5Spread: 70,001.0 − 70,000.0= 1.0 USDT
Figure 1 The best bid is 70,000.0 and the best ask is 70,001.0. The spread is the 1.0 USDT gap between them, and the mid price is halfway, at 70,000.5.
Your turn The best bid is 69,998.5 and the best ask is 70,000.0. What is the spread?
  1. 0.5 USDT

    That is one tick. Count the gap: 70,000.0 − 69,998.5 is three ticks.

  2. 1.5 USDT

    Right. 70,000.0 − 69,998.5 = 1.5 USDT, which is three ticks of 0.5.

  3. 69,999.25 USDT

    That is the mid price, halfway between the two. The spread is the gap.

  4. 3 USDT

    That is the number of ticks, not the USDT amount. 3 × 0.5 = 1.5 USDT.

Show the answer

B: 1.5 USDT. 70,000.0 − 69,998.5 = 1.5 USDT, which is three ticks of 0.5.

2 of 3

Which order trades first?

When a new order can trade, the exchange matches it with the orders that wait in the book. On Cryptathon the order is: best price first, then first come, first served at each price.

So a buy always takes the cheapest ask first. When two sellers wait at the same price, the seller who placed the order first sells first. The size of the order does not change its place in the queue.

Worked example

Two sellers at one price

Two sell orders wait at the best ask, 70,001.0. Seller 1 placed 0.04 BTC first. Then seller 2 placed 0.06 BTC. A buyer sends a market buy for 0.05 BTC. Who sells?

  1. 1
    Check what waits at the best askThat is enough for the whole buy at one price.
    0.04 + 0.06 = 0.1 BTC
  2. 2
    Fill seller 1 firstSeller 1 came first, so all of their 0.04 BTC sells. 0.01 BTC of the buy is left.
    0.05 − 0.04 = 0.01 BTC
  3. 3
    Fill the rest from seller 2Seller 2 sells 0.01 BTC and still has 0.05 BTC in the book.
    0.06 − 0.01 = 0.05 BTC

AnswerSeller 1 sells 0.04 BTC and seller 2 sells 0.01 BTC, all at 70,001.0. Seller 2 keeps 0.05 BTC in the book, now first in the queue.

Sell orders at 70,001.0, in the order they came inBeforeSeller 1: 0.04Seller 2: 0.06Your market buy: 0.05 BTCAfterFilled: 0.04 + 0.01Seller 2: 0.05 left
Sell orders at 70,001.0,in the order they came inBeforeSeller 1: 0.04Seller 2: 0.06Your market buy: 0.05 BTCAfterFilled: 0.04 + 0.01Seller 2: 0.05 left
Figure 2 Two sell orders wait at 70,001.0. A 0.05 BTC buy fills seller 1's 0.04 BTC first, because it came first, then 0.01 BTC from seller 2. Seller 2 has 0.05 BTC left.

One more rule on Cryptathon: if your order would trade with your own order, both are cancelled.

Your turn Seller A placed 0.2 BTC at 70,001.0 first. Later, seller B placed 0.2 BTC at 70,000.5. You buy 0.1 BTC at market. Who sells to you?
  1. Seller A

    Seller A came first, but time only counts at the same price. Seller B asks less.

  2. Seller B

    Right. Best price first: 70,000.5 is cheaper than 70,001.0, so seller B sells before seller A.

  3. Half from each

    Seller B has 0.2 BTC at the best price, enough for all of your 0.1 BTC.

  4. Nobody, until a seller lowers their price

    A market buy trades at once with the best ask.

Show the answer

B: Seller B. Best price first: 70,000.5 is cheaper than 70,001.0, so seller B sells before seller A.

3 of 3

How do you read depth?

Depth is how much waits to trade near the best prices. To read it, add up the sizes on each side of the book.

Depth tells you how far a big order must go. A big buy uses up the asks, so when few asks wait near the top, a big buy fills at higher prices. A big sell does the same to the bids.

Depth shows what waits now. It does not tell you where the price goes next, and orders can be cancelled at any time.

Worked example

Which side is thicker?

The four best asks hold 0.1, 0.2, 0.5 and 0.8 BTC. The four best bids hold 0.3, 0.6, 0.9 and 1.2 BTC. Which side is thicker, and by how much?

  1. 1
    Add the asksSellers that wait at the four best ask prices.
    0.1 + 0.2 + 0.5 + 0.8 = 1.6 BTC
  2. 2
    Add the bidsBuyers that wait at the four best bid prices.
    0.3 + 0.6 + 0.9 + 1.2 = 3.0 BTC
  3. 3
    Compare themThe bid side holds nearly twice as much.
    3.0 ÷ 1.6 ≈ 1.9
  4. 4
    Put the bids in USDTAbout what the bids are worth at about 70,000 a BTC.
    3.0 × 70,000 = 210,000 USDT

AnswerThe bid side is thicker, with about 1.9 times the BTC of the ask side. A big sell finds more buyers near the top than a big buy finds sellers.

BTC that waits at the 4 best pricesBids3.0 BTCAsks1.6 BTC3.0 ÷ 1.6 ≈ 1.9: the bid side is thicker
BTC that waits at the 4 best pricesBids3.0 BTCAsks1.6 BTC3.0 ÷ 1.6 ≈ 1.9:the bid side is thicker
Figure 3 BTC that waits at the four best prices on each side. The bids hold 3.0 BTC and the asks hold 1.6 BTC, so the bid side is thicker.
Your turn The four best asks hold 2.0 BTC and the four best bids hold 0.5 BTC. You sell 1 BTC at market. What do you expect?
  1. It uses bids inside the price band; any part that cannot fill there is cancelled

    Right. Only 0.5 BTC waits at the four best bids. More can fill at lower bids inside the band; the rest is cancelled.

  2. All of it fills at the best bid

    The four best bids hold only 0.5 BTC together, less than your 1 BTC.

  3. The thick asks help it fill at a good price

    A sell trades with bids, not with asks. The asks do not help a sell.

  4. The price must rise, because the asks are thicker

    Depth shows what waits now. It does not tell you where the price goes next.

Show the answer

A: It uses bids inside the price band; any part that cannot fill there is cancelled. Only 0.5 BTC waits at the four best bids. More can fill at lower bids inside the band; the rest is cancelled.

Common questions

What is the smallest spread a market can have?

One tick, because no price can sit between two ticks. On Cryptathon one BTC tick is 0.5 USDT, so the smallest BTC spread is 0.5 USDT, for example a best bid of 70,000.0 and a best ask of 70,000.5. At about 70,000 USDT a BTC, that is less than 0.001% of the price. A wider spread means buyers and sellers are further apart on price.

Is the last trade price the same as the mid price?

No. The last trade price is where the most recent trade happened, and a trade happens at a bid or at an ask. If a buyer takes the best ask at 70,001.0, the last price is 70,001.0. The mid price is halfway between the best bid and the best ask, for example 70,000.5. The two can differ by up to half the spread, or more in a fast move.

Can an order in the book be gone before you trade with it?

Yes. The trader who placed an order can cancel it at any time until it fills, and other traders can fill it before you. So a 2 BTC bid you see at 69,999.0 may be gone one second later. Read the book as what waits now. A big market order fills against what is there when it arrives, not against what you saw.

Check yourself

Three questions on the whole lesson.

Question 1 of 3 On ETH the best bid is 3,000.10 and the best ask is 3,000.30. What is the mid price?
  1. 3,000.30

    That is the best ask. The mid price is halfway between the two.

  2. 3,000.20

    Right. The spread is 0.20, half of it is 0.10, and 3,000.10 + 0.10 = 3,000.20.

  3. 0.20

    That is the spread, the gap between the two prices.

  4. 6,000.40

    That is the two prices added up. Divide by 2 to get the halfway point.

Show the answer

B: 3,000.20. The spread is 0.20, half of it is 0.10, and 3,000.10 + 0.10 = 3,000.20.

Question 2 of 3 You place a sell order at 70,002.0. Two older sell orders already wait there. A buyer takes 0.1 BTC at 70,002.0. Whose order trades first?
  1. Yours, because it is the newest

    It is the other way round: at one price, the oldest order trades first.

  2. The largest order

    Size does not change the queue. Time does.

  3. The oldest order

    Right. At the same price, first come, first served.

  4. All three share it

    The queue fills one order at a time, oldest first.

Show the answer

C: The oldest order. At the same price, first come, first served.

Question 3 of 3 Which price can you not see in the BTC book on Cryptathon?
  1. 70,000.0

    This is a whole number of ticks of 0.5 USDT, so it can be in the book.

  2. 70,000.5

    This is one tick above 70,000.0, so it can be in the book.

  3. 70,000.3

    Right. BTC prices move in ticks of 0.5 USDT, so a price must end in .0 or .5.

  4. 69,999.5

    This is one tick below 70,000.0, so it can be in the book.

Show the answer

C: 70,000.3. BTC prices move in ticks of 0.5 USDT, so a price must end in .0 or .5.

What to remember

  1. What are the bid, the ask and the spread?The spread is the best ask minus the best bid, and the mid price is halfway between them.
  2. Which order trades first?The best price trades first, and at the same price, first come, first served.
  3. How do you read depth?Add up the sizes on each side to read depth; it shows what waits now, not what comes next.
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