Depth

AAA

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."

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Ask

    The price a seller is willing to accept for a security, also ...
  2. Ask Size

    The amount of a security that a market maker is offering to sell ...
  3. Bid

    1. An offer made by an investor, a trader or a dealer to buy ...
  4. Bid Size

    The number of shares being offered for purchase at a specified ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
Related Articles
  1. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  2. Understanding Stock Splits
    Investing Basics

    Understanding Stock Splits

  3. Understanding Financial Liquidity
    Options & Futures

    Understanding Financial Liquidity

  4. Interpreting Volume For The Futures ...
    Options & Futures

    Interpreting Volume For The Futures ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center