Market depth - Financial definition
Concise definition of the term market depth
Market depth refers to the measure of the liquidity available in a market by displaying the quantity of buy and sell orders at various price levels.
Comprehensive definition of the term market depth
Market depth provides insight into the supply and demand dynamics of a financial instrument, showing the quantity of buy and sell orders at different price levels beyond the best bid and ask prices. Traders and investors use market depth data to gauge potential price movements, assess market sentiment, and determine the level of liquidity in a market.
It is particularly useful for assessing the resilience of a market to large orders and identifying areas of support and resistance. For example, a deep market with significant buy and sell orders at various price levels may indicate strong liquidity and price stability, whereas a shallow market with sparse order book depth may be prone to price volatility and rapid price changes.