How Does the Order Book Depth Influence the Bid-Offer Spread on a Crypto Platform?
Order book depth refers to the volume of buy and sell orders at various price levels away from the current best bid and offer. Greater depth, meaning large volumes of orders near the best prices, provides confidence that large trades can be executed without moving the price much, thus encouraging market makers to maintain a tighter bid-offer spread.
Low depth leads to wider spreads.
Glossar
Order Book
Depth ⎊ An order book represents a listing of buy and sell orders for a specific cryptocurrency, option contract, or derivative, displaying price and quantity at various levels.
Order Book Depth Influence
Metric ⎊ Order book depth is a critical market microstructure metric representing the total volume of outstanding limit orders available at various price levels away from the current best bid and offer.
Public Order Book
Ledger ⎊ The public order book, within cryptocurrency derivatives and options trading, functions as a transparent, real-time record of buy and sell orders for a specific asset or contract.
Order Book Depth
Depth ⎊ The order book depth, within cryptocurrency derivatives and options trading, quantifies the liquidity available at various price levels.