What is Deep Market

A deep market is a securities exchange, or place of commerce, where a large number of shares can be bought and sold without drastically affecting the price. A deep market might also refer to the buyers and sellers following a particular issue as well. For example, one could say that Microsoft has a deep market, whereas the typical bulletin board or pink sheets stock has a very thin market.


Generally speaking, deep market stocks show greater price stability and fewer wild volume swings, like many of the issues traded on larger exchanges like the Nasdaq or the New York Stock Exchange. Conversely, thin market stocks, like those traded over the counter, tend to be much more volatile in both price and volume.

Depth of market data helps traders determine where the price of a particular security could be heading in the near future as orders are filled, updated, or canceled. For example, a trader may use market depth data to understand the bid-ask spread for a security, along with the volume accumulating above both figures. Securities with strong depth of market (such as stocks like Apple or Facebook) will usually have strong volume and be quite liquid, allowing large orders to execute without significantly affecting market price. On the other hand, stocks with poor depth (more obscure companies with smaller market capitalizations) could be moved if a trader places a large buy or sell order.

Understanding Deep Market from Thin Market Data

Market depth is closely related to liquidity and volume within a security, but not every stock with high trading volume 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.

Having real-time market depth information can help a trader profit from short-term price volatility. For example, if a company goes public (begins trading for the first time), traders can stand by for strong buying demand, signaling the price of the newly public firm could continue an upward trajectory. In this case, a trader might consider buying shares and selling them once appreciation has reached a desired level and/or if the trader observes selling pressure mounting.