Market Depth & Price Impact

FIN 30600 · Investment Theory — Topic 2 · §3 Trading Costs & Types of Orders

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How to use: tap a quiz chip (“sell 30”) and watch the market order eat the book level by level while the arithmetic builds beside it — total, then average price. Compare the average to the best quote: that gap is your price impact. Use the ticket for any side and size, and the depth-cost curve below to see the whole schedule at once. Open “Edit the book” to thin out the depth and rerun.

At what price can you…

Tap a size — or set your own side and size to the right — and the order walks the book level by level, the arithmetic appearing as it fills.

The arithmetic

Edit the book (advanced)
Asks — resting sell orders
Bids — resting buy orders
Presets

The limit order book

Gold bars are resting sell orders (asks), blue bars resting buy orders (bids); bar length is the number of shares available at that price — the “market depth.” A market order consumes the book from the best price outward.

Depth-cost curve — price impact

Market buy — average price paid Market sell — average price received Best ask / best bid

The bigger the order, the worse the average execution price: this curve is the market-depth picture. Thin out the book and watch it steepen.