What is Market Depth – Beginner’s Guide

 

When we choose a crypto trading platform , the first thing we have to consider is the security and market depth of the platform. Generally speaking, the top ranking trading platforms in the world meet these two characteristics. Both security and depth are good.

 

Security is easy to understand without saying much, so what is the depth of the transaction? How to measure the depth of trading? Let’s explore the following.

 

 

 

What is Market Depth in Trading?

 

 

Market depth refers to the ability of the market to withstand large transactions without significant fluctuations in the price of a coin.  Generally when talking about market depth, it refers to the depth of trading of a certain coin on a certain platform.

 

 

We need to understand market depth from two indicators: pending order volume and spread. A large number of pending orders and a small spread between adjacent pending orders indicate good market depth.

 

 

 

 

 

 

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How to Measure the Market Depth?

 

There are two indicators that are generally used to measure the depth of trading on a platform, one is the spread and the other is the volume of pending orders.

 

 

The spread is the price difference between two adjacent orders. The smaller the spread and the more intensive the pending order price, indicating that the actual price of buying or selling is closer to the real market price. In the long run, good depth can make their own transaction costs to a minimum, even if a trading decision error occurs, but also to be able to reverse the operation at minimal cost to recover, not to cause relatively large capital losses.

 

Pending order volume refers to the number of pending orders for each commission, is a reflection of the market carrying capacity, the larger the pending order volume, means that the better the depth of the transaction, the more able to meet the demand for large single transaction.

 

For example, if you also want to buy 100 BTC, Exchange A has exactly 100 BTC sell orders at the price of 5000, so you will end up with 5000; Exchange B has only 50 BTC sell orders at 5000, and 50 BTC sell orders at 5500, so the cost of buying 100 BTC will go up. So the amount of pending orders determines the current depth can accommodate the volume of users. If the pending orders are small, it is difficult to attract the really big investors to trade.

 

The spread and the volume of pending orders is a measure of the depth of trading, so it is clear that the depth of trading is crucial to the exchange, and for users, it is important to go to the exchange with better depth of trading to trade digital assets. If the depth of trading is poor, the price is easily manipulated, and a large sell order will put a big hole in the price, and a corresponding large buy order will probably pull the price up. If the depth of the transaction is good, the cost at the time of purchase will be lower and the price at the time of sale will be better.

 

Which Crypto Exchanges Have Better Market Depth?

 

 

Generally speaking, the market depth of general currencies of exchanges with large market volume is relatively good. On the contrary, the market depth of exchanges with poor trading volume is also poor. For example, the trading volume of three major exchanges, such as Huobi, Binance and OKEX, is among the top in the world, and they are all top digital currency exchanges.

 

Therefore, their market depth is relatively good. Trading on these exchanges can not only achieve rapid transactions, And they are often able to complete the transaction at a more favorable price. So, are there any exchanges that have better market depth than Huobi, Binance and OKEX? There are, of course, aggregator exchanges, such as BTCC Exchange.

 

 

 

For example, the above chart is the data of BTC/USDT pending orders in the order book of BTCC exchange, whether it is a pending buy order or sell order, the price difference between two adjacent orders is relatively small, the price distribution is relatively dense, the smaller the price difference between adjacent orders is, the better the transaction price is closer to the actual price level of the market, the depth of BTC/USDT trading on BTCC exchange is still relatively good.

 

If the price gap between two adjacent orders is relatively large, it means that the price distribution is relatively sparse and the transaction price is relatively deviated from the actual price level of the current market.