Definition
Order flow is a market microstructure concept describing the continuous sequence and composition of buy and sell orders submitted to a trading venue. It encompasses the size, type, and timing of orders that interact with the orderbook, including both aggressive (marketable) and passive (resting) orders. In crypto markets, order flow reflects how liquidity is demanded and supplied at different prices across centralized and decentralized venues.
As a concept, order flow focuses on the directional pressure created by participants’ orders rather than just executed trades or price levels. It can be inferred from changes in the orderbook, the pattern of trades hitting bids or lifting offers, and the evolution of open interest in derivatives markets. Because it captures the real-time balance between buying and selling intent, order flow is often used to interpret short-term market pressure and potential liquidity imbalances.
Context and Usage
Order flow is closely tied to the structure of the orderbook, since every new order, cancellation, or trade updates visible liquidity and alters the state of supply and demand at each price level. In derivatives and perpetual futures, order flow can be analyzed alongside open interest to understand whether new positions are being built or existing ones are being unwound. The detailed composition of order flow, such as the dominance of large aggressive orders or clustered passive liquidity, helps characterize the current trading regime.
Because order flow reveals where and how orders interact with available liquidity, it is directly related to slippage and the market impact of trades. In crypto, the information content of order flow can also create incentives for behaviors like front-running and certain forms of MEV, where actors attempt to profit from anticipating or reordering transactions. As a result, order flow is a foundational concept for understanding short-horizon price formation, liquidity dynamics, and the informational environment of both centralized and on-chain markets.