Order book depth: how much a route can really take
The spread in the table shows the gap between the best prices but not how many coins can be bought and sold at them. Order book depth does. It decides whether a handsome percentage becomes profit at your size or dissolves into slippage. Here is how to read the book and choose a trade size.
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What the order book is
The order book is the list of buy and sell orders for a coin on an exchange. Sellers' prices (asks) sit on top, buyers' prices (bids) below. Every level has a price and a size: how many coins people will sell or buy at that price. The best ask is the cheapest price you can buy at right now; the best bid is the highest price you can sell at.
Depth is how much money rests in orders near the current price. In a deep book you can buy $10,000 and barely move the price. In a thin one a $500 buy can eat through several levels.
How depth affects profit
When you buy more than rests on the best level, you take the next, more expensive ones. Your average purchase price ends up worse than the best ask. That difference is slippage. In arbitrage it happens on both legs: you bought higher and sold lower.
| Level | Ask price | Size | Cumulative size |
|---|---|---|---|
| 1 | 2.000 | $300 | $300 |
| 2 | 2.004 | $400 | $700 |
| 3 | 2.010 | $600 | $1,300 |
| 4 | 2.024 | $1,500 | $2,800 |
An example ask side. A $300 buy fills at 2.000, $1,000 at an average of ≈2.0046, $2,500 at an average of ≈2.0146.
| $300: slippage ≈ 0% | net spread ≈ 1% |
| $1,000: slippage ≈ 0.23% | net spread ≈ 0.77% |
| $2,500: slippage ≈ 0.73% | net spread ≈ 0.27% |
| $5,000: the book runs out | the route does not work |
That is one side only. On the other exchange the sale also walks through several levels, and the slippage adds up.
Choosing the trade size
Look at both books
Asks on the buying exchange and bids on the selling one.
Work out the average fill for your size
Walk the levels until the size is filled and take the average price.
Compare average prices, not the best ones
The gap between the average buy and the average sell is the real spread at your size.
Subtract fees and the transfer
Size down if too little is left
Every route has its own sweet spot: a bit more and slippage eats the profit.
Signs of a thin book
- Big gaps between neighbouring price levels.
- Little size on the best levels with large size far from the price.
- Low daily volume for the coin on that exchange.
- The exchange's own best ask-bid spread above 0.3-0.5%.
- The book changes heavily within seconds - bots posting and pulling orders.
Traps
- The book moves. While you calculate, orders are pulled and added. Depth that was there a second ago may be gone.
- Visible and hidden orders. Some exchanges have iceberg orders that show only part of their size. Usually it helps, but you cannot count on it.
- Two legs at different times. If the second trade comes after the first, the second book has time to change.
- Small exchanges. Their volume can be "painted": large turnover with no real depth.
The scanner checks both order books for your chosen size and shows the average fill price, the slippage and the net result. Routes that cannot take the size are flagged.
Glossary
- Order book - the list of buy and sell orders.
- Ask / bid - the seller's price / the buyer's price.
- Level - a row of the book: a price and the size at it.
- Average fill price (VWAP) - the average price weighted by size at each level.
- Slippage - the difference between the best price and the average fill price.
Order book depth FAQ
What is order book depth in simple terms?
How much money rests in orders close to the current price. The deeper the book, the more you can buy or sell without moving the price.
How do I calculate slippage?
Walk the book's levels up to your size, work out the average price and compare it with the best price. The percentage difference is the slippage.
What trade size should I use for arbitrage?
One that leaves a clear margin after slippage on both legs, fees and the transfer. For altcoins that is often hundreds of dollars, for major coins thousands or more.
Do limit orders help?
Yes, they do not slip, but they may not fill, and the spread can vanish in the meantime. In arbitrage they are used with care.
Why are spreads big precisely on illiquid coins?
Few can use them: the book is thin and even a small size eats the gap. That is why such spreads persist.
Can I split the trade?
Yes: several small buys with pauses let the book refill. But while you wait, prices on the other exchange move too.
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