What is a depth chart?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
A depth chart plots the cumulative quantity of resting buy and sell orders at each price. It visualises the book as it stands right now; it says nothing about future prices. Resting orders can be cancelled, so the picture changes constantly.
Key points
- Plots cumulative resting quantity by price
- Buy orders on the left, sell orders on the right
- Shows the book now, not what happens next
- Orders can be cancelled, so it shifts constantly
Definition
A graph built from order book data, with price on the horizontal axis and the cumulative resting quantity up to that price on the vertical axis.
The construction is simple. Starting at the best bid and walking down in price, you accumulate resting quantity to form the left-hand staircase; starting at the best ask and walking up gives the right-hand one. The gap between them is the spread.
All the chart tells you is how much is resting up to a given price right now. A large block visible at some level is not a commitment to trade. Resting orders can be withdrawn at any moment, and they sometimes disappear just as the price approaches.
So a depth chart neither predicts prices nor guarantees that a level will hold. Its legitimate use is narrow: estimating, from current information, how far through the book a given size would have to reach in order to fill.
Watch out for
- · Displayed orders are not commitments and can be pulled at any time
- · Each exchange has its own book, so one chart is not the whole market
- · It is not a tool for forecasting future prices