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.

RELATED TERMS
  1. Depth of Market (DOM)

    A measure of the number of open buy and sell orders for a security ...
  2. Depth

    The ability of a security to absorb buy and sell orders without ...
  3. Imbalance of Orders

    A situation when too many orders of a particular type - either ...
  4. Order Imbalance

    A situation resulting from an excess of buy or sell orders for ...
  5. Order Book

    An electronic list of buy and sell orders for a specific security ...
  6. Contingency Order

    An order that is executed only when certain conditions of the ...
Related Articles
  1. Brokers

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  2. Forex Education

    Intermediate Guide To MetaTrader 4 - Order Types

    Traders have the option of placing different order types using the MT4 platform. Market OrderA market order is the most basic type of trade order and is used to buy or sell a security at the ...
  3. Professionals

    Types of Securities Orders

    Securities Orders
  4. Options & Futures

    Interpreting Volume For The Futures Market

    Learn how to read the volume reports, look at the relation to liquidity and interpret volume using open interest.
  5. Online Stock Traders

    Online stock traders place buy/sell orders for financial securities and/or currencies with the use of a brokerage's Internet-based proprietary trading platforms. The use of online trading ...
  6. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  7. Professionals

    A. Introduction: Trading Securities

    Investors, who do not purchase their stocks and bonds directly from the issuer, must purchase them from another investor. Investor-to-investor transactions are known as secondary market transactions. ...
  8. Professionals

    Times For Entering A Quote

    The NASDAQ opens for trading at 9:30 AM EST with an opening cross. Market makers in anticipation of the opening may enter bids and offers based on orders that the firm has received from customers ...
  9. Professionals

    Types Of Orders

    Investors can enter various types of orders to buy or sell securities. Some orders guarantee that the investor’s order will be executed immediately. Other types of orders may state a specific ...
  10. Professionals

    Types Of Orders

    Investors can enter various types of orders to buy or sell securities. Some orders guarantee that the investor’s order will be executed immediately. Other types of orders may state a specific ...
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 >>
  4. How is a product line depth related to a product line?

    Understand what a product line is and why it's important to a company. Learn how product line depth is related to a company's ... Read Answer >>
  5. Why is the execution of a limit order not guaranteed?

    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 >>
  6. How do I place a limit order online?

    Learn how a limit order is placed, the types of stocks it is most useful for and the specifications placed with it to suit ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center