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Key Takeaways
- Market depth displays quantity at multiple bid and offer prices.
- Add the eligible levels to calculate cumulative quantity at the chosen limit.
- The worked 1,200-share buy costs $60,020 and averages $50.0167.
- Read displayed orders alongside completed trades to follow consumption and replenishment.
- Use the price ladder to choose quantity and a limit for the selected security.
What is market depth?
Market depth is the displayed quantity available to buy and sell a security at multiple prices. The highest bid and lowest offer form the top of the displayed book, and lower bids and higher offers show the next available levels. Depth shows how much displayed size a trader can reach at each price, not just at the best quote.
Market-by-price data aggregates orders at each price. Market-by-order data supplies individual order events. Exchange feeds and broker screens organize those updates into the ladder a trader reads.
Formula
Cumulative ask depth through price P = sum of displayed ask size at every level with price less than or equal to P- For bids, cumulative depth through a lower price sums displayed bid size at or above that price.
- The result depends on venue coverage, aggregation, feed latency, and the snapshot time.
Market depth example: a 1,200-share buy through two levels
XYZ shows 400 shares offered at $50.01 and 900 shares at $50.02. A trader submits a marketable order to buy 1,200 shares while the displayed book remains unchanged.
- First level: 400 × $50.01 = $20,004
- Second level used: 800 × $50.02 = $40,016
- Total cost: $20,004 + $40,016 = $60,020
- Average execution price: $60,020 / 1,200 = $50.0167
- Average slippage from the $50.01 best offer: $0.0067 per share
The $50.02 level displays 900 shares. The specified order uses 800 of them after buying 400 at $50.01, leaving 100 at the second level. Its $60,020 total is $8 above buying all 1,200 at the initial $50.01 offer.
The bid side contains 600 at $50.00, 1,000 at $49.99 and 1,400 at $49.98, giving 3,000 shares across those three levels. Each level supplies a distinct price and quantity.
How traders read market depth
Read the ladder together with time and sales. Follow executions at a level and the quantity that remains or replenishes after them.
Use the same depth window when comparing bid and ask totals. Signed order book imbalance equals bid size minus ask size, divided by their combined size. Balance is zero. The alternative bid-share measure divides bid size by total size and balances at 0.50.
A venue book shows that venue’s displayed orders. A multi-venue ladder aggregates its covered markets. Reserve quantity, hidden orders and complex-order packages use their respective execution mechanisms.
How to use market depth to set quantity and a limit
Select the security, intended quantity and limit together. For a buy, add eligible offer quantities through the limit; for a sell, add eligible bids down to the limit. Reconcile actual fills against that order after execution.
On the options side, options flow shows the size already printed at your strike and expiration, and the options profit calculator shows how the limit you set moves the breakeven and payoff.
Limitations of market depth
- Depth shows displayed orders only. Reserve quantity and hidden orders sit outside the visible ladder, so read the prints alongside the book before you size off it.
- Know what your feed covers. A venue book shows one venue and a multi-venue ladder only its markets, and feed latency puts the ladder behind the live market.
- Price the order with a limit. The $60,020 cost holds only while the book stays unchanged, and orders cancel, replenish and execute while yours works.
- Compare bid and ask totals over the same depth window. A three-level total against a five-level total mixes two measurements.
Bottom line
Market depth shows how much displayed size sits at each price behind the best quote, which tells you what an order of a given size would cost against the visible book. Add levels through your limit, compare bid and ask totals over the same window, and confirm the book with completed trades.
Clear answers
Frequently Asked Questions
Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.