Market Depth
Market depth is the amount of buy and sell quantity available at different price levels in the order book. It determines how much you can trade without moving price.
Definition
Market depth describes how much quantity is available to buy and sell across price levels in the order book.
Why it matters
Depth is a key driver of execution quality. When depth is low, even moderate order sizes can move through multiple levels and create slippage and price impact.
Depth and effective spread
Low depth often increases effective spread because your execution price ends up further from the midquote.
Common pitfalls
Looking only at the top level: The best bid and ask might have tiny size, hiding the real cost for larger orders.
Assuming depth is stable: Depth can disappear quickly when someone cancels or reprices orders.