What Is ‘Order Book Depth’ and How Does It Measure Liquidity?

Order book depth refers to the volume of buy and sell orders at various price levels away from the current market price. A deep order book indicates high liquidity, meaning large trades can be executed without significantly impacting the price.

A shallow order book indicates low liquidity and high potential for slippage. Arbitrageurs use depth to gauge the capacity of the market to absorb their trade size.