Market depth tells you how many buy and sell orders are lined up at different prices for a cryptocurrency. It gives a real-time view of supply and demand, helping traders see how large trades could affect the price.

Visualizing market depth

Market depth is usually shown as a depth chart. This chart displays total buy volume on one side and total sell volume on the other. It makes it easy to see where there are large groups of orders, called “walls,” or where there are gaps. Traders who want exact numbers can also look at the raw order book, which lists the same data in rows.

How depth and liquidity are measured

To measure depth, people look at a few key things. One is how much volume is available within a certain price range from the current price. Another is the size of the bid-ask spread. Traders also check the likely slippage for a certain order size, which shows how much the price might move when making that trade. These measures help you quickly see if a market is shallow or deep.

Why market depth matters for traders

If depth is shallow, even medium-sized orders can move the price a lot and cause slippage. In deeper markets, larger trades can happen without big price changes. Professional traders and market makers add and remove orders to keep spreads tight, which helps make prices more stable and trading easier.

Factors that change market depth

Depth changes based on how many buyers and sellers are active, how popular the trading pair is, whether market makers are present, and overall market conditions. News, the time of day, and exchange rules or policies can also quickly increase or decrease visible liquidity.

Limits of market depth data and ways it can mislead

Order books display posted orders, but not all of them are real. Some orders are small or fake and can be canceled at any time. Practices like spoofing or wash trading can make depth seem better than it is. Iceberg orders also hide most of their size, so public depth may not show true buying or selling interest.

Practical tips for using depth when trading

Look at market depth before making large trades. Breaking up big orders into smaller parts or using limit orders near areas with lots of liquidity can help reduce slippage. Watch out for large walls that could stop price moves, and be cautious if depth drops quickly, as this can cause unpredictable trade results.