Order Book Imbalance
OBI = (bid_volume − ask_volume) / (bid_volume + ask_volume), aggregated over some depth (the touch only, top-N levels, or volume-weighted depth). Values near +1 indicate dominant buying interest; near −1, selling. Depth-weighting and the choice of which level to include dominates how the metric behaves.
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Definition
Order book imbalance
OBI = (bid_volume − ask_volume) / (bid_volume + ask_volume), aggregated over some depth (the touch only, top-N levels, or volume-weighted depth). Values near +1 indicate dominant buying interest; near −1, selling. Depth-weighting and the choice of which level to include dominates how the metric behaves.
Why it matters
Short-term price changes are driven by who exhausts the queue first. OBI captures the imbalance that predicts which side the next trade is most likely to consume. It's the strongest single short-horizon predictor on most equity venues — and it's been heavily harvested by HFT, so the alpha decay is fast.
How it works
Snapshot the order book at decision time. Choose depth (top-1, top-5, full book). Compute weighted volume on each side. Aggregate to OBI. Microprice = (bid × ask_volume + ask × bid_volume) / (bid_volume + ask_volume) is a related quantity that already incorporates OBI into a price estimate.
Example
5-level deep book on a liquid name
Top-of-book bid size
1,200 sh
Top-of-book ask size
300 sh
OBI (top-of-book)
+0.60
OBI (top-5 levels)
+0.18
Top-of-book signals strong buying pressure; depth-weighted signals only mild. Choosing the depth changes the strategy entirely — top-of-book OBI is a millisecond signal, deep OBI is a minute signal.
Key Takeaways
OBI signal strength decays with depth; top-of-book is fastest, deepest is slowest.
Microprice is the natural mid-quote when OBI is non-zero.
OBI alpha has been heavily harvested by HFT — pure OBI strategies rarely survive in retail.
Related Terms
Try These Tools
Run the numbers next
Order Book Replay Visualizer
Drop a Level-2 CSV and watch the book reconstruct tick by tick. Animated depth bars, best bid/ask, spread over time. Understand microstructure before.
Execution Simulator
Model realistic order fills — square-root market impact, linear temporary impact, latency jitter, partial fills, and queue position. See the real cost.
FAQ
Questions people ask next
The short answers readers usually want after the first pass.
Sources & References
- Order Book Dynamics in Liquid Markets — Cont, Stoikov, Talreja (2010), arXiv:1101.5392
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