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SVE · Market microstructure

Order book depth

Also called: market depth, depth of book, DOM

Order book depth shows how much size is resting at each price on the bid and ask sides, which determines how far a large order would move price.

Definition

An order book lists resting buy orders (bids) and sell orders (asks) at each price for an instrument. Depth refers to the quantity available at each price level and, cumulatively, within a given distance of the best price.

A deep book has large size close to the best prices; a thin book has little, so trades move price more.

Intuition

The best bid and ask tell you the price for a small order. Depth tells you what happens to a large one: a market order consumes resting size level by level, and the average fill price worsens as it eats through the book. Depth therefore links the visible book to expected trading cost and short-term price sensitivity.

Imbalances between bid and ask depth near the touch are watched as a short-horizon indicator of pressure, although displayed size can change quickly.

How it's calculated

  • Spread: best ask − best bid; mid price (best bid + best ask) / 2.
  • Cumulative depth within distance d of the mid: the sum of sizes on each side at prices within d.
  • Depth imbalance over the top n levels: I = (Vbid − Vask) / (Vbid + Vask), between −1 and +1.
  • Microprice: (Pbid·Vask + Pask·Vbid) / (Vbid + Vask), a mid weighted towards the side with less size.
  • Walk-the-book cost for a buy of Q units: average price paid across levels until Q is filled, minus the mid.

Example: if the ask side shows 100 units at 50.00, 200 at 50.05 and 300 at 50.10, a market buy of 400 units fills 100 at 50.00, 200 at 50.05 and 100 at 50.10, an average of 50.05, five cents above the best ask before any fees.

How to read it

Wide spreads and thin depth mean higher costs and larger price impact; tight spreads and deep levels mean the opposite. Watch how depth refills after large trades: quick replenishment signals a resilient market.

Displayed depth is not the whole picture. Hidden and iceberg orders add unseen size, and displayed orders can be canceled before you reach them, so treat the book as an indication rather than a promise.

Common mistakes

  • Assuming all displayed size will still be there when your order arrives.
  • Reading a large resting order as a firm floor or ceiling.
  • Ignoring hidden liquidity and fragmentation across venues.
  • Comparing depth across instruments with very different prices or tick sizes without normalizing.

In Saqrid

SVE's order book panel shows bid and ask depth with size bars.

Orders you place there run on a built-in paper-trading matching engine.

Open SVE.

  • Paper tradingPaper trading means placing simulated orders against market prices without committing capital, to practice execution and test a process.
  • Bracket orders (take-profit / stop-loss)A bracket order pairs a position with a take-profit and a stop-loss exit; when one exit fills, the other is canceled automatically.
  • Options fair value vs quotesAn option's fair value is a model price from a fitted volatility surface; a quote is what someone will trade at. Only the quote is tradeable.
  • Range barsRange bars close when price has traveled a fixed distance rather than when a fixed amount of time has passed, removing time from the horizontal axis.

Go deeper

Saqrid Institute lesson: Order Books & Market Microstructure. Lesson text is open to read without an account.

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