Market depth in crypto trading refers to the measure of the volume of buy and sell orders available in the market at different price levels. Essentially, it shows the total amount of buy orders and sell orders that are available for a particular cryptocurrency at different prices.
For instance, let’s say the current market depth for Bitcoin is as follows:
| Bid Price (Buy Orders) | Bid Quantity | Ask Price (Sell Orders) | Ask Quantity |
|---|---|---|---|
| $50,000 | 10 BTC | $50,100 | 8 BTC |
| $49,900 | 15 BTC | $50,200 | 7 BTC |
| $49,800 | 20 BTC | $50,300 | 5 BTC |
The table above indicates that there are 10 Bitcoin available for purchase at a price of $50,000, while there are 8 Bitcoin available for sale at $50,100. Additionally, the market depth shows that there are more buy orders at lower prices, with 15 Bitcoin available at a price of $49,900, and 20 Bitcoin available at $49,800. On the sell side, there are fewer orders available at lower prices, with only 5 Bitcoin available for sale at a price of $50,300.
Understanding market depth can help traders determine the level of supply and demand for a particular cryptocurrency, which in turn can help inform trading strategies and decisions.