Order flow in trading refers to the real-time flow of orders entering the market. It represents the buy and sell orders for a particular asset, such as stocks, currencies, or commodities, as they are submitted by traders.

Order flow consists of buy and sell orders and can be used in a few key applications by traders, allowing them to gather data and incorporate it into their trading strategies. 

Buy & Sell Orders

Order flow includes both buy and sell orders. Traders place these orders through various trading platforms, and they are then executed on an exchange.

Trading volume is the sum of both buy and sell orders and order flow simply represents the breakdown of the trading volume to show the size of each trade in real time.

Brokerages and trading platforms provide order flow streams for all of their tradable instruments, such as stocks, currencies, crypto, options, futures, etc. 

Depth Charts

Order flow is typically visualized using a depth chart, which shows the increasing and decreasing dynamic of order flow for a particular asset. 

This chart shows the current buy and sell orders at different price levels. Traders use this information to assess the supply and demand for an asset at various price points.

Depth charts are useful visual representations of the order flow and allow traders to analyze order volumes as they appear on the market. 

This can be useful for traders that are looking for major signals of trend continuations and reversals to structure their trades around. 

Liquidity & Market Sentiment

Order flow provides information about liquidity in the market. A liquid market has a high volume of orders, making it easier for traders to buy or sell without significantly impacting the price. In illiquid markets, there may be fewer orders, and executing large trades can lead to price slippage.

Another important use of order flow is measuring market sentiment. For instance, a sudden surge in buy orders may suggest bullish sentiment, while a high volume of sell orders may indicate bearish sentiment.

Algorithmic Trading

Order flow is useful in algorithmic trading as well. High-frequency trading and algorithmic trading strategies often rely on order flow data to make split-second trading decisions. These algorithms may execute trades based on specific conditions related to order flow.

Typically, high-frequency trading is done using high-edna algorithms, which can analyze the order flow in a matter of nanoseconds and execute thousands of trades per session. 

• Order flow is a sum of the buy and sell orders on a particular instrument and shows a breakdown of large and small orders on the market 
• Buy and sell orders make up the trading volume on capital markets and traders can use this data to assess the liquidity of a particular instrument
• If the order flow is high, the instrument is considered to be highly liquid, and vice versa
• Order flow is especially important for high-frequency and algorithmic traders, who use state of the art software to analyze order flow and make thousands of trades regularly