What does 'Depth of Market (DOM)' mean

Depth of market (DOM) is a measure of the number of open buy and sell orders for a security or currency at different prices. The depth of market measure provides an indication of the liquidity and depth for that security or currency. The higher the number of buy and sell orders at each price, the higher the depth of the market. Depth of market data is also known as the order book, since it shows pending orders for a security or currency. This data is available from most exchanges for a fee.

BREAKING DOWN 'Depth of Market (DOM)'

Depth of market also refers to the number of shares, which can be bought of a particular corporation, without causing price appreciation. If the stock is extremely liquid and has a large number of buyers and sellers, purchasing a bulk of shares typically will not result in noticeable stock price movements.

Depth of market usually exists in the form of an electronic list of buy and sell orders; these are organized by price level and updated in real time to reflect current activity. While at times the data is available for a fee, now most trading platforms offer some form of market depth display. This allows all parties trading in a security to see a full list of buy and sell orders pending execution, along with their sizes—instead of simply the best ones.

Using Depth of Market Data

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 (e.g. a highly popular large cap company like Apple [AAPL]) will usually have strong volume and be quite liquid, allowing traders to place large orders without significantly affecting market price. Yet those securities with poor depth (more obscure companies with smaller market capitalizations) could be moved if a trader places a large buy or sell order.

Being able to view depth of market information for a particular security in real-time allows traders to 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.

RELATED TERMS
  1. Depth

    Depth is a market measure that shows the ability of a security ...
  2. Deep Market

    A deep market is a securities exchange where a large number of ...
  3. Order Book

    An order book is an electronic list of buy and sell orders for ...
  4. Order Driven Market

    An order driven market is where buyers and sellers display their ...
  5. Above The Market

    Above the market refers to an order to buy or sell at a price ...
  6. Fill

    A fill is the action of completing or satisfying an order for ...
Related Articles
  1. Trading

    Why limit orders may cost more than market orders

    Learn the difference between a market order and a limit order, and why a trader placing a limit order sometimes pays higher fees than a trader placing a market order.
  2. Trading

    High-Frequency Trading: A Primer

    An in depth look at how high-frequency trading works and who the players are.
  3. Trading

    The Basics of the Bid-Ask Spread

    The bid-ask spread is the difference between the bid price and ask price prices for a particular security.
  4. Personal Finance

    Quit Your Job to Trade Stocks?

    Ready to quit your day job and become a full-time trader? These tips will help you determine your area of expertise.
RELATED FAQS
  1. The difference between a market order and limit order

    Market orders execute a trade to buy or sell immediately at the best available price. A limit order only trades when the ... Read Answer >>
  2. How do I place an order to buy or sell shares?

    Read a brief overview of how to open a brokerage account, how to buy and sell stock, and the different kinds of trade orders ... Read Answer >>
  3. When is a buy limit order executed?

    A buy limit order is only executed when the asking price is at or below the limit price specified in the order. Read Answer >>
  4. What is the difference between a stop order and a stop limit order?

    Learn the differences between a stop order and a stop limit order. Traders use these as stop losses and regular investors ... Read Answer >>
  5. Why can't I enter two sell orders on the same stock?

    The limitation on sell orders protects investors. Learn 3 reasons why you can't enter multiple sell orders and the downsides ... Read Answer >>
Trading Center