The depth chart, as the name suggests, refers to a graphical representation of trading depth. Users can utilize the depth chart to observe the current buy and sell order quantities in the trading market. This is common on exchanges that rely on an order book. The depth chart represents active users and trading volume data on the exchange, offering a visual reflection of market depth and liquidity. Hence, knowing how to read a depth chart is essential knowledge for traders.
So, how do you interpret a depth chart? Let's look at the MX spot trading depth chart on MEXC.
Horizontal Axis: Represents the price of the orders
Vertical Axis: Represents the quantity of the orders
Green Area: Represents the buy orders
Red Area: Represents the sell orders
Intersection: Represents the current price
Range: Indicates the price range
Depth charts typically serve two main purposes: ① Assessing Depth ② Understanding Long-Short Contrast.
By looking at a depth chart, you can assess market depth. If the depth is good, the edges of the buy and sell areas on the depth chart will appear jagged, with smaller jagged edges indicating smaller price spreads. If the depth is poor, the depth chart will display clear step-like patterns.
② Understanding Long-Short Contrast
We can quickly judge long and short market forces by comparing the areas colored in red and green. A larger green area indicates a stronger buying pressure, while a larger red area indicates a stronger selling pressure. If the areas are roughly equal, it signifies that buying and selling pressure is equally strong.
It is important for users to master depth charts as market depth directly impacts trading costs. Good depth implies a significant number of orders placed, leading to minimal price differences between the buy or sell price and the actual price. Conversely, poor depth, indicating a lower number of placed orders, can result in substantial discrepancies between the trader's order price and the actual executed price, leading to higher price differences and increased trading costs.
Disclaimer: Cryptocurrency trading involves risk. This information does not constitute investment, taxation, legal, financial, accounting, consultancy, or any other related advice, nor is it advice to buy, sell, or hold any assets. MEXC Learn offers information for reference purposes only and does not constitute investment advice. Please ensure you fully understand the associated risks and invest cautiously. All user investment activities are independent from this platform.