The first two articles looked at history — trades that already happened. This one looks at the present — what hasn’t traded yet: all the buy and sell orders investors have posted and left waiting to be matched, a.k.a. the order book. Along the way, we’ll explain how each day’s opening price is produced (the call auction).
The five-level order book: orders queuing to trade
Next to the buy/sell buttons in a market app there’s usually a block like this:
| Level | Price | Size |
|---|---|---|
| Ask 5 | 38.15 | 320 lots |
| Ask 4 | 38.10 | 156 lots |
| Ask 3 | 38.05 | 208 lots |
| Ask 2 | 38.02 | 97 lots |
| Ask 1 | 38.01 | 45 lots |
| Bid 1 | 38.00 | 62 lots |
| Bid 2 | 37.98 | 130 lots |
| Bid 3 | 37.95 | 210 lots |
| … | … | … |
- Best ask (Ask 1): the lowest sell quote among all resting orders — the price someone who wants to buy right now has to pay.
- Best bid (Bid 1): the highest buy quote — the price someone who wants to sell right now can get.
- The gap between best ask and best bid is the spread. Liquid large caps have a spread of just ¥0.01; a sleepy small cap may have gaps of several levels.
It’s a real-time miniature of a street market: one side queues shouting “I’ll sell at 38.01,” the other queues shouting “I’ll buy at 38.00.” While neither side yields, no trade happens; the moment someone is willing to cross over, a trade occurs.
Limit orders vs. market orders: what you’re really choosing when you place an order
- Limit order: you name the price. “I’ll pay at most 38.00” — it joins the best-bid queue, and it may fill or never get to you.
- Market order: no price limit; it fills immediately at the best prices the book can offer. “I want it now” — it eats the 45 lots at best ask, and if you want more it keeps eating Ask 2, walking the price up level by level.
The cost of a market order is slippage: you think you’re buying at 38.01, but with a bit of size your average cost becomes 38.05. The A-share Main Board has protective mechanisms for market orders (types like “best five levels” are available), but beginners can never go wrong with limit orders — at least you always know the worst price you’ll pay.
The call auction: how the opening price gets “auctioned” off
Every day from 9:15 to 9:25, the exchange doesn’t match trades continuously. Instead, it collects all orders and, at 9:25, computes in one shot the price that maximizes matched volume; all qualifying orders fill at that single price — that’s the opening price. The rules differ across three time windows:
- 9:15–9:20: you can place orders and cancel them. The order book in this window has the lowest reference value — big money often posts exaggerated orders and then pulls them to create false impressions (colloquially called “auction baiting”).
- 9:20–9:25: you can place orders but cannot cancel them. These five minutes of data are real — whatever you post, you’re on the hook for. To see genuine buying and selling intent, only look after 9:20.
- 9:25–9:30: you can place and cancel orders, but the exchange doesn’t process them; continuous trading begins at the 9:30 open.
Shenzhen also has a three-minute closing call auction (14:57–15:00), and Shanghai switched to the same three-minute closing auction in 2018 — so closing prices on both exchanges are now produced by call auction too.
Ask-side volume, bid-side volume, order ratio, volume ratio: four second-hand indicators
Market apps also like to display these derived indicators — all of them reprocessings of order-book/trade data:
- Ask-side volume （外盘）: volume executed at the ask price (buyers actively “lifting” the offers), interpreted as active buying intent.
- Bid-side volume （内盘）: volume executed at the bid price (sellers actively “hitting” the bids), interpreted as active selling intent.
- Order ratio （委比） = (queued buy lots − queued sell lots) ÷ (queued buys + queued sells) × 100% — measures the bull/bear balance of the resting order queues.
- Volume ratio （量比） = current per-minute average volume ÷ the per-minute average of the past 5 days. A ratio of 2 means today’s trading pace is twice the recent norm.
One sentence that must be said plainly: all four of these indicators are extremely easy to manipulate — treat them as reference only. Bid/ask-side volume is classified by “which side the trade price touched,” and splitting one large order into many, or trading in the middle of the queue, distorts the statistics. The order ratio counts resting orders, and resting orders can be cancelled at any moment — an order that hasn’t executed is a statement, not a commitment. The volume ratio is the most honest of the four (it’s based on real trades), but even it only says “today is busier than usual” — no direction included.
The deepest pit of the order book: posting orders is free theater
Once you understand “orders can be cancelled,” you understand why the order book is the most deceptive data there is:
- Tens of thousands of buy lots stacked on the bid side don’t necessarily mean “someone is propping up the price” — it may be a big player posting them so you feel safe buying, while his own sell orders quietly unload at the best ask, ready to pull the props at any moment and let the price free-fall.
- A massive sell order pressing down on the ask side doesn’t necessarily mean “overwhelming pressure” — it may be there deliberately to scare you into handing over your shares.
So the veteran’s way of reading the book is: don’t look at how much is posted, look at how much has executed; don’t look at the static queue, look at how fast the queue changes. For beginners it’s even simpler: for your first six months you can ignore order-book data entirely — use limit orders, watch the close and the volume, and you’ll miss nothing.
Next article we leave the trading floor and move to the company level: total shares, free float, restricted shares, market cap, price adjustment — the concepts that determine “how big this stock actually is, and whether this price is actually expensive.”
This article explains terminology only and does not constitute investment advice.