Description: Market depth is a measure that reflects the supply and demand of a cryptocurrency at different price levels. This concept is crucial in the realm of decentralized finance (DeFi), as it allows traders and investors to assess the liquidity and stability of a digital asset. Market depth is commonly represented through a chart that displays buy and sell orders on an exchange, helping to identify how many units of an asset are available for purchase or sale at specific prices. Greater market depth indicates that there are more orders in the order book, which generally translates to lower volatility and better pricing for traders. Conversely, low market depth can result in more drastic price movements, as even small transactions can significantly impact the asset’s price. In the context of DeFi, where markets are often less regulated and more volatile than traditional markets, understanding market depth becomes essential for making informed decisions and managing risks. Additionally, market depth can influence trading strategy, as traders may choose to place limit or market orders depending on the liquidity available at the time of the transaction.
