Order Book Depth is a measure of an asset’s liquidity on an exchange, indicating the total number of buy and sell orders at various price levels around the current market price. Greater order book depth suggests higher liquidity, meaning larger trades can be executed with minimal price impact. Conversely, shallow depth indicates lower liquidity and potential for significant price volatility. It reflects market order density.
Context
Order book depth is a crucial metric for traders and analysts assessing the stability and tradability of a digital asset. Periods of reduced depth often precede significant price swings, as fewer orders are available to absorb large buy or sell volumes. The discussion frequently centers on how external factors, such as market sentiment or news events, influence the overall liquidity reflected in the order book.
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