Order books tell you what you can actually execute. Not just what prices are displayed. Reading order books prevents execution surprises. Helps you enter and exit efficiently.
What is an order book
An order book shows all pending orders. Bids (buy orders). Asks (sell orders). Price and size. This is what you can actually trade.
Bids (buy orders)
People want to buy. At specific prices. In specific sizes.
Example: Best bid is 60¢ for 100 contracts. You can sell immediately at 60¢. Up to 100 contracts.
Asks (sell orders)
People want to sell. At specific prices. In specific sizes.
Example: Best ask is 65¢ for 50 contracts. You can buy immediately at 65¢. Up to 50 contracts.
Bid-ask spread
The spread is the difference between best bid and best ask. This is your immediate cost. If you buy and sell immediately, you lose the spread.
Example: spread calculation
Best bid: 60¢. Best ask: 65¢. Spread: 5¢. Or 5% of contract value.
If you buy at 65¢ and sell immediately at 60¢, you lose 5¢. That's the spread cost.
Narrow spreads mean liquid markets. Wide spreads mean illiquid markets. Avoid wide spreads unless you have strong conviction.
Reading Kalshi order books
Kalshi shows YES and NO order books separately. Each has bids and asks. Check both sides.
YES order book
Shows bids and asks for YES contracts. Best bid is highest price someone will pay. Best ask is lowest price someone will sell.
Example: YES bid 60¢ (100 contracts). YES ask 65¢ (50 contracts). You can buy YES at 65¢. Sell YES at 60¢.
NO order book
Shows bids and asks for NO contracts. Same structure. Check both YES and NO for arbitrage opportunities.
Example: NO bid 35¢ (200 contracts). NO ask 40¢ (75 contracts). You can buy NO at 40¢. Sell NO at 35¢.
Depth matters
Check how many contracts are available at each price level. Not just best bid/ask.
Example: Best ask is 65¢ for 50 contracts. But next level is 66¢ for 500 contracts. If you need 100 contracts, you'll pay 65¢ for 50, then 66¢ for 50. Average price: 65.5¢.
Reading Polymarket order books
Polymarket shows order books differently. Each outcome has its own order book. Check all outcomes.
Multi-outcome markets
Polymarket markets can have multiple outcomes. Each outcome has its own order book. Check all of them.
Example: "Who will win election?" Outcomes: Biden, Trump, Other. Each has bids and asks. Check all three. Look for arbitrage. YES + NO should sum to $1.00. If not, opportunity.
Also check: Do all outcomes sum to $1.00? If not, mispricing. Or market structure issue.
What order books tell you
Order books reveal more than prices. They reveal liquidity. Market sentiment. Execution risk.
Liquidity
Deep order books mean high liquidity. You can execute large sizes. Thin order books mean low liquidity. Hard to execute.
Example: Best ask has 10,000 contracts. You can buy 1,000 contracts easily. Best ask has 10 contracts. You can only buy 10. Then price moves.
Market sentiment
Imbalance in order book reveals sentiment. More bids than asks: bullish. More asks than bids: bearish.
Example: YES has 1,000 contracts on bid side. 100 contracts on ask side. Market wants to buy YES. Bullish sentiment.
Execution risk
Thin order books mean high execution risk. Your order moves the price. Deep order books mean low execution risk.
Example: You want to buy 500 contracts. Order book has 50 contracts at best ask. You'll move the price significantly. High execution risk.
Read order books effectively
Understanding order books helps you execute efficiently and avoid execution surprises. Get early access to tools that analyze order book depth and help you estimate slippage on Kalshi and Polymarket.
Conclusion
Order books tell you what you can actually execute. Not just displayed prices. Reading order books prevents execution surprises.
Kalshi shows YES and NO order books separately. Polymarket shows order books for each outcome. Check both sides. Check depth. Not just best bid/ask.
Order books reveal liquidity. Market sentiment. Execution risk. Narrow spreads mean liquid markets. Deep order books mean you can execute large sizes. Thin order books mean high execution risk. Use this information to execute efficiently.