Explain the Relationship between Market Depth and Asset Volatility ⎊ Path

Explain the Relationship between Market Depth and Asset Volatility.

Market depth is the measure of the total volume of buy and sell orders at various price levels around the current market price. A deeper market (more orders) acts as a buffer, absorbing large trades without significant price movement.

Therefore, greater market depth is inversely related to volatility; a deeper market is generally less volatile because large institutional trades have a reduced impact.

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