The price at which the market is prepared to sell a product. Prices are quoted two-way as bid/offer. The offer price is also known as the ask. The ask represents the price at which a trader can buy the base currency, which is shown to the right in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.
In CFD trading, the ask represents the price a trader can buy the product. For example, in the quote for UK OIL 111.13/111.16, the product quoted is UK OIL and the ask price is £111.16 for one unit of the underlying market.
If a market is said to be trading offered, it means a pair is attracting heavy selling interest, or offers.
A trade that cancels or offsets some or all of the market risk of an open position.
Attempting to sell at the current market order price.
One cancels the other order (OCO)
A designation for two orders whereby if one part of the two orders is executed, then the other is automatically cancelled.
An option that pays a fixed amount to the holder if the market touches the predetermined barrier level.
Option expiry date/price
The precise date and time when an option will expire. The two most common option expiries are 10:00am ET (also referred to as 10:00 NY time or NY cut) and 3:00pm Tokyo time (also referred to as 15:00 Tokyo time or Tokyo cut). These time periods frequently see an increase in activity as option hedges unwind in the spot market.
An instruction to execute a trade.
An order book is a list of orders for a specific market, recorded by an exchange to measure market depth and interest from buyers and sellers.
Order books are often used by traders to identify market sentiment. For short-term traders in particular, order books are valuable as they show whether bulls or bears are dominant in the market.
Typically, order books are made up of three main components:
- Buy orders – shows buyer information including volume and price
- Sell orders – shows seller information including volume and price
- Order history – shows the orders that have been made in the past
Order books don’t cover every order in the market, as ‘dark pools’ also anonymously take orders. Dark pools are private exchanges that don’t show the identity, nor the intent (e.g. buy or sell) of an order. These are orders from whales – large traders in the market such as banks or corporations – who don’t want their trading activity to be publicly available.
Given the large volume of whales’ trades, if this information was widely available it would give traders a clear indication of how a market’s price might move.
What is order book trading?
Order book trading is a strategy that involves using the information from an order book to profit from the markets.
If an order book is showing a number of large buy orders not being filled, for example, it can indicate a dominance of bulls in the market as traders want to buy at a certain price but are unable to find a seller. Traders can exploit this imbalance and trade accordingly, in this case anticipating a price rise.
While order book trading can be a profitable strategy for day or short-term traders, there’s often only a small window to trade. It requires quick thinking and split-second decision making.