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Order book imbalance

The ratio of resting bid size to resting ask size, used as a very short-horizon signal of which way the next ticks are likely to go.

Imbalance at the top of book has genuine predictive power over horizons measured in seconds, which is why market-making and short-term signals lean on it. Over minutes and hours it decays to noise.

It is also the most gamed statistic in the book, because displayed size is cheap to post and free to cancel. Treat a lopsided book as a hypothesis, not a fact, and check whether the size persists when it is actually attacked.

Example: 40,000 bid against 6,000 offered gives an imbalance of 40,000 / 46,000, about 87% on the buy side. Over the next few seconds the offer is more likely to be lifted than the bid to be hit. If the 40,000 vanishes the instant a seller arrives, it was phantom-liquidity and the signal was a trap.

Related: phantom-liquidity, depth-of-market, queue-position, imbalance-message

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.

Educational only, not advice. Spotted an error? Post in Site Feedback.