What is Market Depth?
Quick Answer: Market depth measures the volume of buy and sell orders resting at each price level, signaling how much size the market can absorb before price shifts materially.
Understanding Market Depth
Market depth measures the volume of buy and sell orders available at each price level. Deep markets absorb large trades with minimal price impact; shallow markets move quickly when big orders hit.
Assessing Depth
Depth tools show cumulative volume above and below the current price. Combine them with order book data, time-of-day analysis, and knowledge of upcoming events to anticipate liquidity changes.
Session Dynamics
Depth in EUR/USD thickens as London opens, peaks during the London-New York overlap, and thins after the New York close. Align trade size with these cycles.
Strategic Applications
Use depth cues to decide between market vs. limit orders, set realistic targets, or anticipate slippage. When depth collapses, reduce leverage and consider staying flat.
False Security
Displayed depth can vanish fast in stressed markets. Do not rely solely on quoted size—always plan for worse execution.
Related Terms
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