Depth

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DEFINITION of 'Depth'

The ability of a security to absorb buy and sell orders without the stock price dramatically moving in either direction. Depth is closely related to the liquidity of the market. A deep market can be expected to absorb larger buy and sell orders before an order moves the prices. Generally, deep markets will have smaller bid-ask spreads because of the increased competition among market makers for order flow.


Also referred to as "market depth."

BREAKING DOWN 'Depth'

In a deep market there will be a long list of buyers and sellers at various prices in the order book. This is good for investors because it means that the market is not dependent on any one market maker to provide adequate liquidity.

Depth is particularly important for institutional investors who routinely need to buy and sell large amounts of a security. It is much easier for an institution to trade a security that has a deep market without broadcasting its intentions or moving the market against itself.

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