The book is a set of resting intentions
A Level 2 order book groups limit-order quantity by price. Bids advertise willingness to buy below the best ask; asks advertise willingness to sell above the best bid. The midpoint between the best bid and ask provides a neutral reference for comparing nearby depth.
Because liquidity far from the midpoint is unlikely to interact with the next trades, an imbalance calculation needs a price band. Comparing equal distances on both sides avoids giving one side a wider measurement area.
A simple imbalance calculation
One common normalized form is (bid depth - ask depth) / (bid depth + ask depth). Equal depth returns zero; dominant bids approach +1 and dominant asks approach -1. Implementations may weight closer levels more heavily or use notional rather than units.
Market Tug uses notional depth within 20 basis points and normalizes it before combining it with trade flow. The precise band, synchronization rules, and model version matter when comparing results from different tools.
Why a large imbalance can disappear
Displayed orders can be filled, moved, or cancelled. A large bid is evidence of current advertised liquidity, not a binding promise that its owner will remain. Snapshot and update streams also have to be sequenced correctly; a gap can make a local book inaccurate.
For that reason Market Tug treats the book as one component, validates update IDs, and fails closed when synchronization is uncertain. Executed flow receives the larger weight because it represents completed transactions rather than resting intent.
Questions to ask when reading depth
Check the venue, pair, quote currency, distance from mid-price, units, timestamp, and whether the display is a single snapshot or a maintained live book. Without those details, two imbalance numbers may describe different things.
Imbalance can explain how much nearby resistance is visible, but it cannot reveal hidden liquidity or guarantee future price movement.