What is Market Depth?
Depth measures how much liquidity exists beyond the best bid and ask. A market might have a tight 2-cent spread, but if there are only 10 contracts at the best price, it's shallow — a 100-contract order would blow through multiple price levels.
Reading Depth
When you run sf depth, you see the full orderbook with quantities at each level. The key metrics are:
- Top-of-book: Contracts at the best bid and best ask
- 5-level depth: Total contracts within 5 cents of the midpoint
- Total depth: All resting orders on both sides
Depth vs. Volume
A market can have high depth but low volume (lots of resting orders, few trades happening). This is common in markets waiting for a catalyst — market makers post orders but nobody is taking them.
Conversely, a market can have low depth but high volume during a news event — orders are being filled and replenished rapidly.
Why Depth Matters for Edge
The SimpleFunctions liquidity score combines depth with spread to grade how executable an edge is. A 10-point edge on a market with only 20 contracts of depth is much less valuable than a 5-point edge on a market with 5,000 contracts of depth.
Depth and Position Sizing
Your position size should never exceed a small fraction of total depth. A common rule: don't try to fill more than 10% of the visible bid-side depth in a single order, or you'll cause excessive slippage.