Depth of market

A view of the order book arranged as a ladder: price levels running up and down the screen, with the quantity resting at each one beside it. A top of book quotation answers what the best price is. Depth of market answers what stands behind it, which is the question that determines what a larger instruction actually achieves, because size that exceeds the quantity at the best level continues into the next.

Whose book it is matters more than the display suggests. An exchange traded instrument has one central book, so the ladder is the market. A market organised over the counter has no central book at all, so the ladder shown is one provider's aggregation of the streams it receives, and another provider's ladder for the same instrument at the same instant is a different picture. Neither is wrong, and neither is the whole market.

Two limits are worth holding onto. Resting interest can be withdrawn faster than it can be read, so the ladder describes intent that existed a moment ago rather than a commitment. And it shows only what has been displayed: iceberg and other hidden order types deliberately reveal a fraction of their size, so a level can absorb far more than the ladder said was there. Depth is therefore evidence about liquidity, not a measurement of it.