What is "Market Depth" or "Depth-of-Book"?

Market depth displays investors intentions to modify a position. 

The display is generally a sell-side tool as its function is to show execution venues bid and offer markets. However, technology vendor utilities may be used to display buy-side brokers intentions "Indications of Interest".

The display reflects investor interests. Horizontal display formats reflect bids on the left side and offers (ask) on the right side while vertical display formats reflect bids on the bottom of the "ladder" and offers at the top.

• Buy orders to start or increase a position requires a bid price and order quantity. Sell orders to liquidate a position (or create a short position) requires an offer (ask) price with order quantity.

• Size indicates the quantity to be traded at each price level. This information can be used to identify large traders ("whales"), which can have a significant impact on the market. Many traders use "iceberg" orders to mask intentions however algorthmic trading reduces the significance of hidden quantities.

• Priority for display is first by time the order is received.

These factors allow traders to gauge the liquidity and depth of the market and to identify potential support and resistance levels.

The market depth display is intended to show all available and tradeable markets for a selected security. 

• The consolidated quotation service (CQS) is responsible for the centralized distribution of the national best bid offer prices.

• Technology vendors with market depth products are responsible for distribution of national market system (NMS) information to firms requiring trading platforms.

If one or more of the tradeable markets, or liquidity pools, is not available due to systemic failure, whether that's from CQS or NMS, then a fair and equitable market may not be available at the moment of trade.

Execution management systems generally provide realtime "Time and Sales" display that show the current executed order price and size. Traders often use the Time and Sales display as a heartbeat to insure that systems are working.

If a market feed fails then the associated price level will also be missing. If an order to buy or sell was generated at the moment that a price feed was not available, then some or all of the intended order would not be routed to the execution destination.