What does "Depth" in a market refer to?

"Depth" in a market refers to the ability of the market to sustain relatively large orders without impacting the price significantly. This concept is critical for understanding how much buying or selling pressure the market can absorb before prices start to move. When we talk about the size of an order required to affect price, we are essentially discussing the market's depth. A market with great depth can allow for larger trades without causing substantial price fluctuations, indicating a healthy level of liquidity.

In contrast, the volume of trades executed over a period relates more to market activity than to depth itself. The number of buyers and sellers present highlights market participation, but it does not capture the concept of how orders can influence the price. Lastly, the time required to fulfill an order pertains to execution speed and efficiency, which are different aspects of market functionality. Overall, recognizing "depth" as the size of an order necessary to impact price provides insight into market liquidity and stability.