What’s an offer? 

For any given cryptocurrency, the offer is a dynamic electronic ledger that records all unfilled buy orders (bids) and sell orders (asks) in real time. It basically shows how much of a particular cryptocurrency traders want to buy or sell at any given price, at any given time. The idea is to provide a complete view of what’s happening in the market. 

How does an offer work? 

The offer operates in four steps: 

1. Order submission

This is when a trader submits an order via their platform. There are different types of order, with the most commonly used being market orders (instructions to buy or sell immediately at the current market price) and limit orders (instructions to buy or sell when the market hits a specific price or better). 

2. Order sorting rules

Price Priority Principle: For buy orders, the higher the price, the higher the priority (for example, a buy order at $100,000 for BTC takes precedence over a buy order at $90,000). For sell orders, the lower the price, the higher the priority (for example, a sell order at $90,000 for BTC takes precedence over a sell order at $100,000). 

Time Priority Principle: Orders with the same price are sorted by submission time (for example, if there are two orders to buy BTC at $100,000, the one that was submitted first will be executed first). 

3. Matching engine logic

When a new order arrives, the system scans the opposing side of the offer to find a match. 

4. Order status updates

Fully Executed: The order disappears from the offer. 

Partially Executed: The remaining quantity stays in its original position (retaining time priority). 

Unexecuted: Limit orders remain on the offer until they are matched by higher priority orders, manually cancelled by the trader, or they expire (if there is a time-in-force condition attached)  

What is market depth?

Market depth refers to the ‘reservoir’ of liquidity in the market, which means the cumulative order volume at different price levels in the offer. The greater the depth, the stronger the liquidity, and the more likely any given order is to find a match and be filled. This makes for smoother, more consistent trading, even in big sizes, and generally smaller price fluctuations. 

The importance of the offer

Without the offer, a market for a cryptocurrency like Bitcoin wouldn’t work. It plays a critical role in:

• Price discovery’, meaning the interaction between buyers and sellers that leads to a fair price
• Trade matching, meaning automatically matching orders when the buy price is great than or equal to the sell price. 

It also provides full market transparency, revealing how the forces of supply and demand are driving price action.

The value of seeing market depth

When all you know about a market is the prevailing price, it’s basically impossible to have any idea where it’ll go next. But if you can see what’s happening ‘beneath the surface’, you might be able to pick up on patterns or trends that provide an indication of where the market’s heading. 

For example, an accumulation of sell orders at a particular price is suggestive of a resistance level (where the price is unlikely to get any higher). And conversely, an accumulation of buy orders might be showing you a support level (where the price is unlikely to get any lower).

Seeing market depth also allows you to identify, and prepare for, anomalous market conditions. For example, if there’s a sudden reduction in the volume of orders, the chances are there’s about to be a lot more volatility as the price bounces around trying to match fewer, more disparate buyers and sellers. And you might be able to spot attempts at market manipulation, where a trader places (and eventually cancels) a large number of orders on one side of the offer, essentially faking supply or demand signals to move the price in their favour.