Start with the mechanism, because the argument only holds if you understand how an order book actually fills. NGX runs an order-driven market: your buy or sell order does not go to a dealer who prices it for you, it goes into a book and matches against whatever is sitting on the other side. If you place a market order to buy and there are only 500 shares offered at ₦25.00 before the next seller wants ₦26.20, your order for 2,000 shares does not fill at one price. It eats through the book, level by level, and your average cost rises with every level it clears. This is called slippage, the difference between the price you expected and the price you actually got. It is a direct cost, and it is larger when the book is thin.
Market depth is simply how much size sits behind the best bid and ask, at each price step above and below. A deep book has meaningful volume several levels down on both sides. A shallow one has a handful of shares at the top and then a wide jump to the next quote. Depth matters more than the headline bid-ask spread alone, because a tight spread with almost nothing behind it is a trap: the quote looks good until you try to trade any real size against it.
Here is a worked illustration. Say a stock shows a bid of ₦12.00 for 1,000 shares and an ask of ₦12.40 for 800 shares, a spread of 40 kobo, or roughly 3.3% of the price. That alone looks tolerable. But if the next bid down is ₦10.50 and the next ask up is ₦14.00, the book has almost no cushion. A single seller moving 3,000 shares at market would likely push the trade price down toward ₦10.50 or below, a near-13% hit from the last quoted bid, before the order even finishes filling. Compare that to a liquid large-cap where the top five levels on each side might hold tens of thousands of shares within a few kobo of each other. The spread there might look similar in percentage terms, but the depth behind it means a comparable order barely moves the price. Same mechanism, very different outcome, because of depth rather than the spread you see at a glance.
This is why a thin book is worth treating as a standalone risk signal rather than background noise to filter out. Illiquidity is easy to miss on a price line alone. A stock can print a steady, gently rising line on low volume and look calm, while the order book behind that line is three or four trades deep on a bad day. The chart tells you where the price has been. The book tells you how much it would cost you to change your position right now, and what happens to price discovery, how fairly the market is pricing the stock given real buying and selling interest, when only a few participants are active. A market with few participants is more easily moved by a single order, and more easily distorted by one as well.
There is a limit worth being plain about. Depending on the app you trade through, you may see only the best bid and best ask, or a few levels below them, rather than the full book. If so, you cannot tell exactly how thin the book is beyond the levels on your screen. What you can see is whether the spread is wide and whether volume is low, and that is itself a proxy worth reading.
The practical reading is this: a wide spread paired with low daily volume is not a sign the stock is simply unloved. It is a sign that entering or exiting at a predictable price is harder than it looks on the ticker. Treat that as part of the risk profile of the stock itself, alongside its fundamentals, not as a separate, lesser concern that only matters for traders moving large size.
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