Market depth

Where a quote states only the best bid and the best ask, depth states what sits behind them: the quantity available at the top of each side, and at each successive price beneath and above it. A market is deep when substantial size rests close to the top on both sides, and thin when little does. Depth and turnover are different measurements, and a market can trade a great deal while holding very little resting quantity at any moment.

The consequence is a cost, not a curiosity. An order larger than the quantity at the best price consumes that level and continues into the next, so the average price achieved is worse than the price displayed, and the shortfall is a form of slippage caused by size rather than by delay. Depth is what determines the size of that shortfall, which is why the same order is inexpensive in one market and expensive in another at the identical quoted spread.

What a depth window actually shows is where readers are most often misled. On an exchange it is the central order book, the real resting orders of every participant. In an over the counter market such as foreign exchange there is no central book at all, so the window shows the aggregated prices a particular provider has assembled from its own liquidity sources. Two providers therefore display genuinely different depth for the same instrument at the same instant, neither of them wrong, and neither of them the whole market. Resting quantity is also not a commitment: it can be withdrawn faster than an order can reach it.