Market Depth

Market depth is the quantity of resting orders stacked at each price level on either side of an order book, and it answers a question daily volume never does: how much can I trade right now before I move the price against myself. Two pairs can report identical turnover while one absorbs a large order within a fraction of a per cent and the other gaps several per cent on the same size, because turnover counts trades that already happened and depth measures the orders standing there now. Practitioners usually reduce it to a single figure — the total size available within a set distance of the mid price, commonly a half or one per cent either side — because that is the number that predicts execution cost. Three cautions come with it. Depth is not a promise: resting orders can be cancelled in the moment before your order arrives, and in fast markets they routinely are. Depth is unevenly distributed, so a book that looks thick on the bid can be hollow on the ask, which matters if you are the one selling. And depth is thinnest precisely when volatility is highest, which is when most people finally decide to trade. Size your order against the depth actually present, not against the average day.