Definition of Order Imbalance

What is an "order imbalance"? What is the definition of the term "order imbalance"?

If you have ever watched CNBC or Bloomberg, then you have probably heard the term "order imbalance" being used.

There are two types of order imbalances - a buy order imbalance, and a sell order imbalance.

A buy order imbalance occurs when there is a disproportionate amount of buy orders compared to sell orders - a sell order imbalance is the exact opposite.

A buy order imbalance might occur if there is a "leak" of a possible positive earnings surprise - a sell order imbalance might occur if a big investor decides to dump a large block of shares just before the close.

In order to counteract these imbalances, exchanges will release information about the imbalances in order to bring them in line. For instance, if you read of a large buy imbalance, you may figure that this is a good time to dump some of your shares, or the imbalance will likely result in you receiving a higher price for your shares.

In certain circumstances, imbalances can be so bad that the stock is temporarily halted until the situation is addressed.

So, in short:

Buy Order Imbalance = Buy Orders > Sell Orders
Sell Order Imbalance = Sell Orders > Buy Orders


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