On This Page
Key Takeaways
- Order book imbalance compares displayed bid and ask quantities.
- The signed scale runs from −1 to +1, with balanced quantities at zero.
- The 8,000-share bid and 2,000-share ask produce +0.60 signed imbalance.
- The same top of book has an 80% bid share.
- Across five levels the same book reads +0.45, a weaker bid lean than the +0.60 at the top.
- Pair displayed depth with completed trades to see the quantities quoted and executed.
What is order book imbalance?
Order book imbalance is a measure of the difference between displayed bid and ask quantities in a limit order book, expressed on a signed scale from −1 to +1 or as the bid’s share of the total. A positive signed reading means more quantity on the bid side; a negative reading means more on the ask side. The calculation applies to the top of book or a chosen set of price levels and counts the displayed quantity at those levels.
How is order book imbalance calculated?
Subtract ask quantity from bid quantity and divide by their positive total. With 8,000 shares bid and 2,000 offered, the result is 6,000 / 10,000 = +0.60.
The bid-share calculation uses 8,000 / 10,000 = 80%. Convert bid share to signed imbalance by multiplying by two and subtracting one. Equal quantities give 50% bid share and zero signed imbalance.
Across the worked five levels, bid quantity totals 17,500 and ask quantity totals 6,600. The difference is 10,900 shares and the combined quantity is 24,100, producing +0.45.
Formula
Imbalance = (Qb − Qa) / (Qb + Qa)- Qb is the displayed bid quantity and Qa is the displayed ask quantity over the selected price levels.
- Calculate the ratio with positive total displayed quantity, Qb + Qa.
- The signed scale runs from −1 to +1, with zero indicating equal quantities.
- Bid share is Qb / (Qb + Qa). Signed imbalance = 2 × bid share − 1.
- Use the same level selection and weighting on both sides of a weighted calculation.
Worked Example
XYZ shows a best bid of $50.00 for 8,000 shares and a best ask of $50.02 for 2,000 shares. The next four levels hold 4,000 / 3,000 / 1,500 / 1,000 shares on the bid and 1,800 / 1,200 / 900 / 700 shares on the ask.
- Top of book: (8,000 − 2,000) / 10,000 = +0.60
- Top-of-book bid share: 8,000 / 10,000 = 80%
- Five bid levels: 17,500 shares; five ask levels: 6,600 shares
- Five-level signed imbalance: 10,900 / 24,100 = +0.45
Displayed bid quantity exceeds ask quantity at the top of book and across the five levels. The two signed readings are +0.60 and +0.45. Compare those quoted quantities with the next recorded executions to see where size actually trades.
How traders read order book imbalance
Market depth shows the displayed price levels and quantities. Time and sales records the executions. Reading them together shows which quoted levels trade and how the displayed quantities change.
Choose the intended quantity and limit price alongside the available book; for options, options flow shows contract activity by strike and expiration.
Order book imbalance vs order flow imbalance and auction imbalance
Order book imbalance describes a point in time. Order flow imbalance measures additions, cancellations and executions over an interval. Auction imbalance describes unmatched eligible interest at an auction price.
Studies of quote imbalance relate the top-of-book queues to the next price and trade events, and studies of order flow imbalance work from changes over an interval. Match the measure on your screen to the one a finding used before trading on it.
Limitations of order book imbalance
- The ratio counts displayed quantity; hidden orders and off-exchange liquidity sit outside it. Watch the prints for size that trades without ever showing on the book.
- Name the levels with the reading. The same book gives +0.60 at the top of book and +0.45 across five levels.
- The reading holds for the instant it was taken: displayed orders cancel or reprice without trading, and the ratio records no executions. Recheck it right before the order goes in.
- A positive reading shows resting bids outweigh offers, and the next prints show which side is trading. Read the two together for direction.
Bottom line
Order book imbalance condenses displayed bid and ask quantities into one signed number for a chosen set of levels. State the levels and scale you use, and read the number beside completed executions: resting size shows where liquidity waits, and the prints show where it trades.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity: How to Access Level 2 Quotes (Trader+ Desktop User Guide)
- Lipton, Pesavento, Sotiropoulos: Trade Arrival Dynamics and Quote Imbalance in a Limit Order Book (arXiv:1312.0514)
- Cont, Kukanov, Stoikov: The Price Impact of Order Book Events (arXiv:1011.6402)
How entries are sourced, calculated and updated: editorial methodology.