Glossary / Markets & investing
Order book depth
Also known as Market depth.
- What is Order book depth?
- Order book depth is the quantity of bitcoin resting in orders near the top of a market, and it decides how large a trade the venue can absorb without moving.
Depth is measured as size inside a price band, commonly the coins resting within one or two percent of the mid price on each side. Bitstamp's terms describe a Price Protection Threshold that can reject a market order which would push the price past a set percentage from the best quote. On a thin book, then, your order can be refused rather than merely filled badly.
How it works
Order book depth is a quantity, so a venue computes it rather than describing it.
Add the sizes of every resting buy offer priced inside your chosen band and you have bid depth; the sell side gives ask depth. The two are rarely equal, and the imbalance is what traders watch: 30 bitcoin bid inside one percent against 6 bitcoin offered suits a seller and not a buyer.
Depth is also instantaneous, since any resting order can be cancelled without penalty, and it belongs to one pair on one venue: BTC/EUR and BTC/USD carry separate depth.
Exchanges treat depth as a risk input rather than a display. Bitstamp's Global Ltd terms list pre-trade controls "designed to mitigate the risk of adverse price movements when orders are submitted to the order book": the Price Protection Threshold on market orders, and a Price Band Validation rule that can block a limit or stop order priced too far from the best quote from entering the book. Those controls apply at placement only and are explicitly not guaranteed at execution, since "order book changes between placement and execution" can outrun them.
Where you see it
Order book depth appears on a trading screen in three familiar forms, and in a fourth place nobody looks for it.
The ladder gives it level by level. The depth chart plots the same figures as a cumulative curve, so a steep wall means shallow and a long slope means deep. The pre-trade estimate hands it over as the amount you will receive. The fourth place is a rejection notice: when a threshold of the Bitstamp kind fires, your order bounced because the market was too thin to take it quietly.
Then there is the screen built to hide it. Our Bitstamp record puts spot order-book trading at 0.40 percent taker below 10,000 dollars of 30 day volume, against a 1.8 percent spread baked into the Basic Trading price and a 4 percent fee on instant card and Apple Pay buys. Those screens quote one guaranteed number with no book in sight. On the derivatives side the stakes read differently: Bitstamp's financial services rulebook closes a defaulting member's position with immediate-or-cancel orders, and whether that position is fully liquidated "depends on the other Orders in the Order Book at the time". Depth there is not a trading cost, it is whether somebody else's default gets absorbed.
None of the 63 exchange records on this site carries a depth figure: any number published here would be stale before you finished the sentence.
Order book depth vs bid-ask spread
Order book depth and the bid-ask spread measure two different axes of one book. The spread runs along the price axis, the distance between the best standing bid and the best standing ask, crossed once by anyone who wants immediacy. Depth runs along the quantity axis, how much you can transact before you leave the level you were quoted. The spread prices your first coin and depth prices your hundredth, so a wider quote over a fat book can beat the tightest headline in the market.
Order book depth vs wash trading
Order book depth and reported trading volume are separate claims, and wash trading is why the second is weak evidence for the first. Volume describes trades that already happened, and two accounts trading with each other can manufacture it. Depth describes orders standing right now, and a standing order can be hit, so faking it costs the faker real exposure instead of a fee. Judge a venue on the figure you can actually trade against.