Learn to read the order book — Hinglish notes

6.4.2 · Stock-Market › Order Flow & Tape Reading

ORDER BOOK kya hota hai?

Key derived quantities (inhe hum neeche first principles se build karte hain):

Best Bid = highest price jitna koi pay karne ko taiyar hai.
Best Ask = lowest price jis par koi bechne ko taiyar hai.
Spread = Best Ask − Best Bid.
Mid price = best bid aur best ask ka average.

BOOK do stacks jaisi kyun dikhti hai?

Core numbers ko scratch se derive karna

Maano best bid price $b$ hai aur best ask price $a$ hai, jahan $a > b$ (warna trade ho jaati).

Spread. Spread simply ek side se doosri side "cross" karne ki cost hai: $S = a - b$ Kyun? Agar aap abhi buy karna chahte hain toh ask $a$ pay karna hoga; agar turant sell karo toh sirf bid $b$ milega. Instant round-trip loss $a - b$ hai. Woh loss hi spread hai.

Mid price. Asset ki sabse fair single "price" dono best intentions ke bilkul beech mein hoti hai: $M = \frac{a + b}{2}$ Average kyun? Kisi aur info ke bina, true value equally likely hai $[b, a]$ mein kahin bhi hone ke liye; uniform guess ki expected value uska midpoint hoti hai.

Weighted mid (micro-price). Naive mid ignore karta hai ki har side par kitna size hai. Agar huge bid size $Q_{b}$ hai aur tiny ask size $Q_{a}$ , toh buyers dominate karte hain → fair value ask ki taraf lean karti hai. Opposite side ke size se weight karke: $M_{w} = \frac{a Q _{b} + b Q _{a}}{Q _{b} + Q _{a}}$ Opposite side kyun? Large bid volume ( $Q_{b}$ ) demand pressure hai jo price ko upar $a$ ki taraf push karta hai, isliye ise $a$ par multiply kiya jaata hai. Yeh imbalance ka first-principles measure hai.

Order-book imbalance (OBI). $[- 1, 1]$ mein ek pure pressure ratio: $OBI = \frac{Q _{b} - Q _{a}}{Q _{b} + Q _{a}}$ $OBI > 0$ → zyada buyers → upward pressure. $OBI < 0$ → zyada sellers → downward pressure. Total se divide kyun? Normalize karne ke liye: 100 lots ka imbalance ek huge book par kuch nahi hota lekin thin book par sab kuch hota hai.

Actually kaise padhen (worked examples)

Worked example Example 1 — Spread, mid, aur cross karne ki cost

Book:

Bids (px × size)	Asks (px × size)
100.20 × 800	100.25 × 500
100.15 × 1200	100.30 × 900

Best bid $b = 100.20$ , best ask $a = 100.25$ .

Spread $S = 100.25 - 100.20 = 0.05$ . Yeh step kyun? Yeh do best resting orders ke beech ka price gap hai — immediate round-trip cost.
Mid $M = (100.20 + 100.25) /2 = 100.225$ . Kyun? Midpoint = bina size info ke sabse fair single price.
Agar main market-buy karta hoon 500 shares ka toh 100.25 pay karta hoon (poori best ask); 900 chahiye hain, toh 500@100.25 + 400@100.30 leta hoon. Kyun? Market orders book walk karte hain, har level ko top-down khate hain jab tak fill na ho jaaye.

Common mistakes (steel-manned)

Recall Feynman: 12-saal ke bachche ko explain karo

Ek market stall imagine karo. Left side par, bachche chillate hain ki woh kitni candies khareedenge aur zyada se zyada kya price denge — sabse loud (highest price) bachcha aage khada hota hai. Right side par, bachche chillate hain ki woh kitni candies bechenge aur kam se kam kya price lenge — sabse sasta seller aage khada hota hai. Front buyer aur front seller ek doosre ko ghoorte hain apne prices ke beech ek tiny gap ke saath; woh gap "spread" hai. Jab bhi front buyer front seller ki price maan leta hai, candy haath badal jaati hai aur dono chale jaate hain. Agar bahut zyada bacche kharidna chahte hain bechne walon se, toh price upar jaane wali hai. Woh poora chillane wala board order book hai!

Flashcards

Order book ki do sides kya hoti hain?

Bid side (buyers, highest price on top sorted) aur ask/offer side (sellers, lowest price on top sorted).

Best bid ko define karo.

Highest price jo koi bhi buyer abhi pay karne ko taiyar hai.

Best ask ko define karo.

Lowest price jo koi bhi seller accept karne ko taiyar hai.

Spread ka formula?

S = a - b

(best ask minus best bid); immediate round-trip cost.

Mid price ka formula?

M = (a + b) /2

, best bid aur best ask ka midpoint.

Resting book mein best bid best ask se kabhi kyun exceed nahi kar sakta?

Agar karta, toh trade turant fire hoti aur un orders ko hata deti — best bid strictly below best ask rehta hai.

Order-book imbalance (OBI) ka formula?

(Q_{b} - Q_{a}) / (Q_{b} + Q_{a})

; range

[- 1, 1]

, positive = buy pressure.

Micro-price ko opposite side ke size se kyun weight karte hain?

Large bid volume demand hai jo price ko ask ki taraf push karti hai, isliye bid size ask price par multiply hoti hai aur vice versa.

Kya aap mid price par buy kar sakte ho?

Nahi — aap ask par buy karte ho, bid par sell karte ho; mid sirf ek reference hai.

Spoofing kya hai?

Bade orders post karna (usually top se door) bina trade karne ke irade ke, execution se pehle cancel karna, doosre traders ko bait karne ke liye.

Market order book ke saath kya karta hai?

Yeh book ko top-down walk karta hai, poore size ke fill hone tak har price level ko consume karta hai (slippage causing).

Level-1 depth padhna kyun kaafi nahi hai?

Kyunki top ke peeche ki depth (levels 2-5+) determine karti hai ki bade orders par price kitna slip karta hai.

Connections

Order Flow & Tape Reading — book displayed intent hai; tape executed fact hai.
Bid-Ask Spread — yahan derive kiya gaya spread core transaction-cost measure hai.
Market Microstructure — order-book dynamics iska foundation hai.
Limit Orders vs Market Orders — limit orders book build karte hain, market orders ise consume karte hain.
Liquidity & Depth — levels ke paar cumulative size.
Spoofing & Layering — book mein visible manipulation patterns.
Slippage — multiple book levels walk karne ka direct consequence.