Order book depth

The volume of buy and sell orders resting at each price level around the current price. Deep liquidity means a large order can execute with little price impact, thin liquidity means the opposite.

Definition

Order book depth describes how much size is waiting to be traded at prices away from the top of the book. The best bid and ask tell you where the market is; depth tells you how far it moves when someone trades through it.

Why it decides your fill

A market order does not execute at one price. It walks the book, consuming the best level, then the next, until the size is filled. Depth is what determines how many levels that takes.

This is where slippage comes from, and it is the cost that scales with your size. Fees are a percentage and stay a percentage; price impact grows faster than the order does, because each level you reach is worse than the last.

Reading it honestly

Depth is a snapshot, not a promise. Orders can be cancelled the instant conditions change, and depth in a calm market is a poor guide to depth during a violent one. The moment you most need liquidity is the moment it is thinnest.

Depth is also asymmetric. A book can be well supplied on the bid and hollow on the ask, which tells you something about where a move would go if one started.

What to do with it

Size relative to what the book can absorb, rather than relative to your balance. Use limit orders where depth is thin and you can afford to wait, and consider splitting large orders, which is what a TWAP order does automatically.

Depth also matters for exits you never intend to place yourself: a liquidation is a market order into that same book, and a thin book turns a liquidation into a worse loss than the arithmetic suggested.

Where you will run into it

In the order book panel and depth chart of an order-book perpetual DEX. Pool-based venues have no order book, and express the same constraint as price impact against pool liquidity instead.