What displayed depth does and does not tell you

Displayed size is a standing offer, not a commitment

A resting limit order can be cancelled at any moment before it is matched. Depth on screen is therefore a set of offers that exist right now under current conditions, and the conditions that would cause you to take them are frequently the same conditions that cause them to be withdrawn.

This is not deception. A market maker quoting both sides is managing inventory risk, and a large one-sided order is information about that risk. The quote moving away from an incoming order is the system working as designed — but it means the depth you measured a second ago was never a promise about the fill you will get.

The components of what an order costs

Execution cost decomposes into parts that behave differently, and lumping them together is what makes cost analysis unreliable. Kept separate, each one can be reasoned about:

• Spread — the immediate cost of crossing to the other side.
• Impact — the movement your own order causes as it consumes levels.
• Timing — the drift between deciding and executing, which is not caused by you.
• Fees — venue fees, which may be tiered, and network fees where settlement is on-chain.

Why the same book looks deeper than it is

Three effects commonly overstate available liquidity. The first is duplication: the same market maker may quote on several venues against one inventory position, so aggregating books across venues double-counts capacity that can only be used once.

The second is refresh. Depth that replenishes quickly in calm conditions is genuinely useful for small orders and genuinely absent for large ones, because a large order arrives faster than the replenishment. The third is conditionality — some displayed size is contingent on hedges that themselves become expensive precisely when volatility rises.

What to do with this

The practical conclusion is modest: measure your own execution rather than inferring it from the book. Record the price at decision time, the price achieved, and the fees paid, and the difference will tell you more about the liquidity available to you than any snapshot of depth.

This is taught as an exercise in the market structure course using the fee-and-slippage calculator, which is deliberately built to take your own figures rather than to model a market.