What is Market Depth?
Market depth represents the ability of a market to absorb large orders without causing a significant price impact. It shows the cumulative volume of buy and sell orders at various price levels, helping traders understand potential price movements and liquidity conditions.
Key Components
Buy Side Depth
- Cumulative volume of buy orders
- Shows potential support levels
- Indicates buying pressure
Sell Side Depth
- Cumulative volume of sell orders
- Shows potential resistance levels
- Indicates selling pressure
Trading Applications
Price Impact Analysis
- Estimate slippage for large orders
- Identify optimal order sizes
- Plan order execution strategies
Market Structure
- Identify liquidity walls
- Spot potential price barriers
- Detect market manipulation
Related Terms
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