# Liquidity Depth Explained

### The Role of the Liquidity Parameter b

The value of **b** directly determines how steep or flat the cost curve is, which defines the market’s liquidity or “depth.”

#### **High liquidity (b = 100)**

* The curve is flatter
* Even large purchases move the price only slightly
* The market can absorb large trades without strong price swings

<figure><img src="/files/Jfc241Affow9ebirFs7R" alt=""><figcaption></figcaption></figure>

#### **Low liquidity (b = 20)**

* The curve is steep
* Even small purchases cause sharp price increases
* The market is highly sensitive and less liquid

<figure><img src="/files/bILlMYq5lcAkojEfjdlT" alt=""><figcaption></figcaption></figure>

In summary:

* A **large b** acts like a “buffer,” allowing heavy buy pressure without major price impact.
* A **small b** makes the market extremely reactive to trade volume.


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