How Does ‘Order Book Depth’ Quantify Liquidity?

Order book depth quantifies liquidity by measuring the total volume of buy (bid) and sell (ask) orders available at different price levels away from the current market price. A "deep" order book has large volumes on both sides, close to the best bid and ask.

This indicates strong liquidity, as a large market order can be absorbed with minimal price movement. Shallow depth suggests low liquidity and high potential for slippage.