Low order depth refers to a condition in a digital asset exchange’s order book where there are relatively few buy and sell orders placed at various price levels. This indicates a limited amount of capital available to absorb large trades, meaning significant transactions can cause substantial price movements. A market with low order depth is generally less liquid and more susceptible to price manipulation or volatility. It reflects a lack of market participant interest at current prices.
Context
The presence of low order depth often influences trading strategies, particularly for institutional investors who require significant liquidity to execute large positions without adverse price impact. A key discussion involves how centralized and decentralized exchanges can enhance their order book depth through various market-making incentives. Observing persistent low order depth can signal waning interest in an asset or an impending period of heightened price volatility.
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