How it works
An exchange’s order book maintains every active limit order, sorted by price and time. Depth of market displays the visible portion of that book: typically the top 5, 10, or 20 price levels on each side, with aggregate volume at each. Some venues expose only the top level; others stream the entire book. Hidden iceberg orders show only a fraction of their true size, which limits depth’s reliability.
Example
BTC/USDT depth on a major exchange: best bid 43,000 with 50 BTC, next bid 42,990 with 80 BTC, next 42,980 with 120 BTC. Total visible bid depth in top three levels: 250 BTC, $10.7 million. Best ask 43,010 with 30 BTC, 43,020 with 70 BTC, 43,030 with 100 BTC. Selling 200 BTC immediately would walk through all three ask levels and execute at an average of about $43,025, slipping $15 from best.
Why it matters
Depth tells you the true cost of a large order before you click. Strategy backtests using midpoint prices systematically understate execution cost on size; depth-aware backtests are more honest. Depth also reveals positioning: persistent unbalanced bid versus ask depth often precedes directional moves. Most retail platforms expose at least Level 2 depth; if yours does not, that is a sign you are trading on a venue better suited to small orders.
