Why you can't trust the order book on the exchange
When trading in financial markets, many beginner traders pay attention to the order book, believing that it reflects real supply and demand. However, this is far from the truth. The order book is a tool that can mislead, and here's why.
1. The order book is 'painted' by market makers
Market makers are large players that provide liquidity in the market. They can place false orders (spoofing), creating the illusion of supply or demand. For example, a market maker may place a large buy order to attract buyers, then quickly cancel it when the market starts moving in their desired direction.
2. There are no real trades in the order book
The order book shows limit orders but does not display actual executed trades. Therefore, even if you see large orders, this does not mean they will be executed.
3. Manipulations and Algorithmic Trading
Modern markets are controlled by algorithms and HFT (high-frequency trading), which can change the order book in fractions of a second. They place and cancel orders so quickly that a person simply cannot analyze them in time. This makes the order book practically useless for most retail traders.
4. The Illusion of Liquidity
Often in the order book, you can see large orders that create the illusion of high liquidity. However, as soon as the price approaches these levels, such orders disappear. This is a manipulation tactic used by professional traders to influence crowd behavior.
Conclusion
The order book is not an objective reflection of the market situation, but a field for manipulation by market makers and algorithms. Relying on it can trap you into making incorrect trading decisions. Instead, you should pay attention to trading volumes, the flow of actual trades, and liquidity levels, as well as use other analytical methods, such as technical analysis and cluster analysis.