What is market depth?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
Market depth describes how much resting size sits at each price level. A deep book absorbs large orders with little price movement; a thin one moves sharply on the same size. Since resting orders can be withdrawn, visible depth is not a guarantee.
Key points
- The resting quantity available at each price level
- Deeper books absorb size with less price impact
- Thin books make slippage much larger
- Visible orders can be cancelled at any moment
Definition
A measure of how much resting order quantity a book holds, which determines how far the price moves when a given size is executed.
If only 0.5 BTC rests at the best ask and you buy 2 BTC at market, 0.5 fills there and the rest eats into progressively higher levels. The average fill price ends up above the best quote. In a deep book the same 2 BTC would fill close to the top of the book.
Depth varies enormously by asset, venue and time of day. Even a heavily traded pair with ample depth in normal conditions can thin out instantly when orders are pulled during a violent move. And because each exchange keeps its own book, one venue can be thin while another is deep.
The practical use is judging whether your intended size is large relative to the book. An order that is too big for the book moves the price through its own execution, producing a worse average than expected. Splitting an order into parts is a response to exactly that.
Watch out for
- · Orders are pulled en masse in fast markets, so normal-condition depth cannot be relied on
- · Visible resting orders are not a promise of execution
- · Books are venue-specific and do not reflect depth elsewhere