In plain English
What Market depth means
Depth shows how much size is resting in the order book at each price level. A deep market can absorb larger orders with less price movement because there is more liquidity stacked at successive prices. Shallow depth means the available size disappears quickly as orders are executed.
Why it matters
Market depth helps traders estimate how much size can be traded before the price moves materially. It is especially important for larger orders, algorithmic execution, and times when quoted top-of-book liquidity does not reflect the full available supply and demand.
Example
Suppose the best ask is 1.2000 for 2 lots, 1.2001 for 5 lots, and 1.2002 for 8 lots. A buy order for 10 lots would likely consume several levels, which reveals the market’s depth. This simplified example uses one side of the book.
Quick answers
Common questions
Is market depth the same as liquidity?+
Not exactly. Depth is one way to observe liquidity at multiple price levels, but liquidity also includes hidden interest, turnover, and execution conditions.
Why does depth matter for large orders?+
Because a large order may need to trade through several price levels, and shallow depth can increase slippage and partial fills.
Sources