A higher Depth of Market indicates what about liquidity?

• A. Greater liquidity
• B. Lesser liquidity
• C. No effect on liquidity
• D. Increased volatility

Answer: (A)

Depth of Market shows how many buy and sell orders are available at different price levels. When the depth is higher, there are more orders in the book, meaning the market can absorb larger trades without causing a big price move. That ability to handle bigger transactions with less price impact is what we call greater liquidity. In contrast, shallow depth means fewer orders and bigger price jumps for large trades, which signals lower liquidity. So a higher Depth of Market indicates greater liquidity.