The supply and demand for a cryptocurrency at various prices are depicted on market depth charts. For each distinct price level, it displays the density of outstanding buy orders (demand) and sell orders (supply).
A market depth chart is the order book’s visual representation in many ways. In an order book, it displays a visual measurement of the limit buy and limit sell orders.
The outstanding buy orders are shown lined up on the left (in the color green) and the outstanding sell orders are shown lined up on the right (in the color red).
The stack of buy orders is referred to as a “buy wall,” and the stack of sell orders is referred to as a “sell wall.” The cryptocurrency’s current market price is represented by the exact middle point on the chart.
The outstanding limit orders’ price range is shown on the horizontal axis, which moves from left to right, and the total value of all orders is shown on the vertical axis.
Understanding the components of a depth chart is essential for understanding how to read a depth chart. While depth charts may differ between exchanges, a typical Bitcoin depth chart consists of the following essential elements:
- Line Bid. At a given Bitcoin price point, the bid line shows the total value of the buy orders, or bids. It is addressed by a green line inclining adversely from left to right. Dollars or another fiat currency are used to place buy orders.
- Line: Ask At each price point, the ask line shows the total value of the asks, or sell orders.
- A red line with a negative slope from right to left exemplifies it
- Bitcoin is used to place sell orders.
- Axis horizontal. the prices at which buy and sell orders are made.
- Axis vertical. the total amount spent on all bitcoin sell orders.
- The left vertical axis shows the total dollar value of all buy orders.
- The majority of cryptocurrency exchanges offer depth charts where users can see how many buy or sell orders are placed at any point on the bid or ask line.
What Does a Depth Chart Show?
The dollar values on the left axis of a depth chart are stretched to match the total value of the sell orders. Despite being denominated in the same currency, the values on the x-axis are not always equal. An investor or trader can get a sense of the asset’s liquidity and volatility from the difference in the values on the x-axis.
The value of the x-axis ought to be roughly equal if there is roughly equal demand and supply for the asset. Volume will be skewed to the right, resulting in a significant sell wall, if the asset is extremely liquid—meaning that more market participants are looking to sell the asset than are looking to buy it. The chart will be skewed to the left, resulting in a buy wall, in the event that the asset is illiquid, or there is greater demand for it than participants are willing to supply.
Trade Walls
Buy and sell walls can indicate market trends and a significant volume of orders at a particular price. Weighted orders and volatility in the future are represented by buy and sell walls. A depth chart’s list of the buy and sell walls can show a trader how other market participants predict price changes. Huge trade walls can be made by a solitary broker or market creator putting in an enormous request.
Buy Fences
The buy wall rises in proportion to the number of unfulfilled buy orders at a given price. A high buy wall may indicate that traders are confident that the price will not fall below a predetermined level. An enormous purchase wall keeps bitcoin costs from dropping quickly in light of the fact that it makes a lot of purchase orders at one cost.
Buy wall orders may be filled more quickly than during bullish market cycles due to increased market liquidity during bearish cycles. Market psychology can have an impact on the development and expansion of a buy wall. If traders see a large or growing buy wall, they may believe that the asset price will rise, causing them to decide whether to buy and make more money in the long run or sell and make money right away.
Utilizing the Depth Chart to Monitor Both Supply and Demand
The buy wall rises as the price falls, as shown in the chart above. To put it another way, as prices drop, demand rises. The belief of traders that there will be sufficient demand at those lower prices to prevent the market price from falling below those prices is reflected in a higher buy wall.
On the other hand, a sell wall rises with the price, indicating that supply rises with price increases. A high sell wall indicates that traders believe there will be sufficient supply—a large number of sell orders—at those higher prices, preventing the market price from rising above those levels.
Where to Find CEX.IO’s Market Depth Chart
The market depth chart can be found directly beneath the order type selector (Limit, Market, Margin Trading) and directly above the order books (Buy Orders and Sell Orders) on CEX.IO’s Trade page.
Take note of the distinct order book and market depth chart for each market/currency pair.
Final Thoughts: Using a market depth chart, you can see how many traders want to buy or sell a cryptocurrency at a lower price.
A market depth chart illustrates any imbalances between the open buy and sell orders in this context. These irregular characteristics go about as possible help and opposition levels at the cost.
