Market Depth

What is 'Market Depth'

The market's ability to sustain relatively large market orders without impacting the price of the security. This considers the overall level and breadth of open orders and usually refers to trading within an individual security.

BREAKING DOWN 'Market Depth'

For example, if the market for a stock is "deep", there will be a sufficient volume of pending orders on both the bid and ask side, preventing a large order from significantly moving the price.

Market depth is closely related to liquidity and volume within a security, but does not mean that every stock showing a high volume of trades has good market depth. On any given day there may be an imbalance of orders large enough to create high volatility, even for stocks with the highest daily volumes. The decimalization of ticks on the major U.S. exchanges has been said to increase overall market depth, as evidenced by the decreased importance of market makers, a position needed in the past to prevent order imbalances.

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RELATED FAQS
  1. What's the difference between a market order and a limit order?

    Buy and sell trades with market orders at the present stock price and execute limit orders if the stock price falls within ... Read Answer >>
  2. Do stocks that trade with a large daily volume generally have less volatility?

    Stock volatility refers to a drastic decrease or increase in value experienced by a given stock within a given period. There ... Read Answer >>
  3. What is the difference between a stop and a market order?

    Learn about market orders and stop orders, how they are used and executed, and the main difference between stop orders and ... Read Answer >>
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    Using a limit order to buy a stock can be helpful in securing certain prices, but the mechanics of a limit order can decrease ... Read Answer >>
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