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Utilising Order Book Data in Cryptocurrency Trading

If you have ever traded traditional futures markets such as the ES or NQ, you may have noticed that you can only see a few levels of the order book and often have to pay a significant amount to access the full depth.

Even worse, products like Spot Forex and other CFDs do not offer a visible order book since they are traded over the counter (OTC).

However, when it comes to crypto, things are different.

One of the main advantages of trading cryptocurrency derivatives is data transparency; seeing the full market depth for all products is standard.

source: okotoki.com

As useful as this data can be, many traders are intimidated by clusters of numbers popping on the screen. Even if they manage to understand how to read the order book, they more often than not fall for spoofing and end up on the completely wrong side of the trade.

In this article, you will learn everything you need to know about order books, how to read them, what websites to use and how to utilize them in your trading.

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What is the Order Book

The order book, sometimes also called the market depth or DOM, shows us the resting limit orders.

The limit orders are also called passive orderflow, liquidity, or maker orders.

source: Exocharts

The image above shows us the spot order book for BTCUSDT and ETHUSDT on Woo.

The numbers inside the Bid column with a blue background show us bids willing to buy, and the numbers inside the Ask column with a red background show us asks (also called offers) willing to sell.

You might also be familiar with the heatmaps, which are exactly the same as the order book but visualized directly on a chart with different colors based on the order intensity.

source: Mobchart

As someone who originally came to trade crypto from a legacy markets background, I always viewed the order book information as only applicable in extremely low timeframes and as noise due to a large amount of spoofing.

For those of you who do not know, spoofing means placing orders into the order book without the intention of them ever being filled; this happens mostly to confuse other market participants.

What I realized is that things are pretty different in the cryptocurrency space, and order books can often be utilized even on higher timeframes. Large market participants frequently do not care to make their orders visible, probably because the “average crypto trader” does not care about this information at all.

As you can see in the image below, the large bid was left in Solana for several hours before being filled, creating a strong intra-day bounce.

Later on, I will show you the easy way how you can verify if the order was actually filled or not.

Spot vs Futures Order Books

When it comes to trading cryptocurrencies, you have two options: you can either trade derivatives (perpetual futures), or you can trade a spot.

The differences are straightforward: if you trade a spot, you can only buy to own the underlying asset and sell it back to the cash (stablecoins); with derivates, you can speculate on price movements going both long and short and use leverage.

The futures are the “retail trader” choice.

If you think Bitcoin is about to move from $60,000 to $65,000 and you want to buy 1 BTC to make $5,000 if the move happens, you will need to have $60,000 on the exchange to purchase 1 BTC.

For futures, this will be much cheaper as you can use leverage, and your margin requirements will be substantially lower.

Although futures order books can occasionally provide useful information, the limit order book in futures is very often well populated by market makers who provide liquidity rather than trying to express any direction bias.

In the spot order book, we find large players with enough capital to influence the price movements.

The two examples above show the BTCUSDT spot order book (top) and BTCUSDT perpetual futures order book (bottom).

The chart is also filtered out only to show large outstanding orders.

You can very quickly notice that on the spot order book, the large orders only appeared in the areas of decent price turning points compared to the futures order book, which was swarmed by large orders on both sides above and below the price the whole time.

This is a classic example of what market-making (providing liquidity) looks like.

Using Order Book as a Supply and Demand Indicator

You will use the order books much better once you look at the delta imbalance inside the order book.

For those of you who have no idea what delta imbalance is, it is simply a difference between the limit orders available to buy and the limit orders available to sell.

If you have an order book with 100 BTC resting on the bid side (to buy) and 70 BTC resting on the asks side (to sell), the delta in this case would be 30 (100-70).

Below, you will see the example from the actual order book.

You can see that, in this case, the order book is more or less balanced, with a negative delta of 3.1BTC (approximately $150,000).

Luckily, we do not have to look at the constantly changing order book and try to calculate the difference ourselves; several platforms will do it for us and plot the order book depth delta as an oscillator.

Tradinglite, Mobchart, and Trdr.io are the few that can display the order book depth.

I have no affiliation with either of them (besides using a sneaky reff link shill in the URLs in the previous sentence), but all of them are great and have features.

Since you will need a premium subscription to access order book depth data, I recommend Trdr.io because they are the only platform with aggregated order book depth, even though Mobbchart has the largest selection of coins and Tradinglite has the most overall features.

I will complete the rundown of the platforms and settings at the end of the article.

As I mentioned, we do not care about particular price levels but rather the significant delta differences between buyers and sellers when using the order book depth.

The picture above shows price reactions on BTC once the order book delta went above or below $50m; as you can see, every time there was outstanding demand on the bid or supply on the offer, the price followed the direction.

This example is only from the last two weeks of Bitcoin price action, but as I mentioned before, the order book depth can also be used in higher timeframes.

Below, you will see the BTC on a daily timeframe and price reactions when the order book delta was above or below $150m with a depth smaller than 10% from the market price.

Compared to traditional indicators such as RSI, which clearly set boundaries for “overbought/oversold” areas, the order book depth just shows the current delta. What you perceive as high or low is your discretionary decision.

Because of that, it is well worth spending time backtesting previous price reactions in different markets.

Improving on execution using order book depth

The order book depth is not a classic indicator; it does not tell you when to buy or sell.

It simply tells you what if the spot traders (often heavier hands) are interested in buying or selling.

Spot traders are also often much more patient than those who trade futures; because of that, the spot books can be heavily skewed on one side for much longer before the mean-reverting move happens.

As you can see on the chart above, SOL order books were heavily skewed on the sell side, but Solana still rallied 7% higher before eventually selling off.

It would be best if you thought about using an order book depth more as a confluence indicator inside your system, which will help you stay on the same side as large market participants and give you higher conviction in your trades.

On my Twitter, I recently did a full trade breakdown, using the order book depth as a confluence for my overall trade idea; you can find the whole thread here.

Order Book Depth Platforms

To view order book depth, you need to use a specific platform.

There are a few, but I will list the three that I found the most useful for various reasons.

I have no affiliation with either of these platforms, and they might come with additional monthly subscriptions.

Trdr.io

This is my personal favourite as it offers a variety of settings and, most importantly, aggregates data from several exchanges; therefore, you will get a full picture of what is going on.

The little disadvantage of Trdr.io is that they are pretty slow to list any new coins therefore you might not find you favorite altcoins there.

When it comes to settings, you want to make sure that Market Types are set to Spot and the Smaller than setting is 1% or 2.5% for day trading/scalping, 5% for intra-week swings, and 10% for higher-timeframe swing trading.

Mobchart

Mobchart is also great. They do not have aggregated feeds, as they only offer Binance and Bybit, but theyer variety of coins and a screener that have a much wid will show large limit orders across all markets.

Coinglass

Coinglass is the only one which is free and a good starting point if you don’t want to pay for any subscriptions.

They also have aggregated feed, but unfortunately, the indicator will only show you the nearest 1% from market price; therefore, it will only be useful for very fast-paced scalping.

Conclusion

Utilising order book depth in your trading is a great tool to gain additional confluence for any trading system that evolves around using price action or indicators.

Obviously, nothing works every time, but it is usually beneficial to be on the same side of the market as the spot traders.