Market Depth

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. Buyers/Sellers On Balance

    1. A ratio based on aggregate market orders for securities that ...
  2. Depth of Market (DOM)

    A measure of the number of open buy and sell orders for a security ...
  3. Open Order

    An order to buy or sell a security that remains in effect until ...
  4. Volume

    The number of shares or contracts traded in a security or an ...
  5. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  6. Market Maker

    A broker-dealer firm that accepts the risk of holding a certain ...
RELATED FAQS
  1. I don't understand how a stock has a trading price of 5.97, but when I buy it I have ...

    It might seem logical that the last traded price of a security is the price at which it would currently be trading, but this ... Read Full Answer >>
  2. What are the determinants of a stock's bid-ask spread?

    Stock exchanges are set up to assist brokers and other specialists in coordinating bid and ask prices. The bid price is the ... Read Full Answer >>
  3. What is the long-term outlook of the metals and mining sector?

    An industry agency council was established by the World Economic Forum in 2014 to serve as an advisory board on the future ... Read Full Answer >>
  4. What is the railroads sector?

    The railroads sector is comprised of publicly traded stocks for companies that operate railroad tracks and/or trains. Railroad ... Read Full Answer >>
  5. Who are Amgen Inc.'s (AMGN) main competitors?

    Biotech giant Amgen Inc (AMGN) bills itself as one of the first biotechnology firms. It was founded in 1980 and has grown ... Read Full Answer >>
  6. What's the most expensive stock of all time?

    Back in late August 2012, Apple’s (AAPL) stock price reached nearly $700 per share. The stock has since split but has yet ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  2. Investing Basics

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  3. Investing

    Welcome Back, Volatility

    Volatility is likely to resurface as the Federal Reserve gets closer to adjusting its monetary policy stance, even if that adjustment is a measured affair.
  4. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  5. Investing

    Why Are Consumers In Hesitation?

    Diverging monetary policy globally and a stronger dollar continued to be key drivers of the recent underperformance and last week’s tumble in U.S. stocks.
  6. Economics

    Bulk Shipping Companies Struggle As Markets Soften

    The "soft" dry bulk shipping market that confronts shipping companies is a result of lower demand from China, and an excessive amount of bulk ships.
  7. Stock Analysis

    Sierra Wireless Benefits From These Megatrends

    We take a closer look at how Sierra Wireless' transition from 2G to 3G and 4G technologies, has impacted its business today, and the future expectations.
  8. Stock Analysis

    3 Growth Opportunities For ARM Holdings

    ARM Holdings highlighted several growth opportunities in its most recent roadshow presentation. Here are three of the large opportunities it talked about.
  9. Stock Analysis

    Is Cheniere Energy Still On Track For 2016?

    The energy boom in the U.S. has opened up a huge range of opportunities in the oil and gas industry.
  10. Stock Analysis

    What’s The Key To Costco’s Extraordinary Success?

    Costco has been one of America's most successful companies: It's growing, efficient, profitable and its long-term shareholders have benefited a windfall.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  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. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center