Low Order Depth

Definition ∞ 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.