Depth at Best Bid and Ask: The Most Misunderstood Number
What depth at best bid and ask means
Depth at best bid is the quantity available to sell into at the current best bid.
Depth at best ask is the quantity available to buy at the current best ask.
This is also called top of book depth. It is a useful number, but it is easy to misunderstand.
Why it is misunderstood
Many traders see depth and assume: if depth is 500, I can trade 500 at that price. In real markets, that assumption often fails.
Reasons include order cancellation, queue priority, partial fills, and fast moving quotes.
Top of book depth is not a promise
Depth is a snapshot, not a contract. The order book can change between:
• the moment you look
• the moment you submit
• the moment you get filled
In thin prediction markets, those differences happen constantly.
Four reasons depth disappears
1) Other traders are in front of you
Order books are typically price time priority. Even if depth exists, you may not be at the front of the queue. Your trade can fill later or not at all.
2) Cancellations and quote updates
Liquidity providers can cancel and repost quickly. Depth can vanish before your order reaches the book.
3) Partial fills across levels
If your size is larger than available depth at the best price, you fill across multiple levels. Your execution price becomes a VWAP and you take slippage.
4) Spread widening regimes
Around news or near expiration, the book becomes unstable. Depth is often pulled and spreads widen, increasing both slippage and effective spread.
How to use depth correctly
Use depth as a sizing constraint
A practical rule is to size your order relative to available top of book depth. If your order size is larger than depth, assume you will pay worse prices.
Look beyond the first level
Top of book depth alone is incomplete. You want to know how much size exists within a price band around the top. That is the real measure of tradability.
Combine depth with spread
Depth must be interpreted together with the bid ask spread.
• Tight spread with tiny depth can be worse than wider spread with stable depth.
How depth connects to execution cost
When depth is low relative to your size, you will usually see:
• higher slippage
• higher effective spread
• more partial fills
• more price impact
Worked example
• best ask is 52c with depth 20
• next levels are 53c with depth 50, and 54c with depth 100
• you buy 80 contracts
Your fills will likely be:
• 20 at 52c
• 50 at 53c
• 10 at 54c
Your execution price must be computed with VWAP. This is why top of book depth is a sizing hint, not a guarantee.
Common mistakes
Assuming depth is reserved for you: it is not.
Ignoring queue position: depth can exist but you still miss the fill.
Ignoring deeper levels: slippage is driven by the whole book, not just the top.
Measuring only entry: depth often collapses on exit too.
Takeaway
Top of book depth is a snapshot indicator of how much liquidity is available right now. Use it to size trades and anticipate slippage, but never treat it as a guaranteed fill at that price.
Related
• Order Book Basics for Prediction Markets
• Market Orders vs Limit Orders: Cost Tradeoffs
• Slippage
• VWAP