Market depth provides a detailed view of the buy and sell orders for a particular asset at various price levels. It illustrates the market's liquidity at different prices and its capacity to handle large orders without significantly affecting the asset's price.
- What is market depth used for?
- What are the components of the market depth?
- How market depth can shape asset prices
- Where can I view the market depth of a security?
- How can I get access to market depth data?
What is market depth used for?
Market depth is primarily used by investors to measure the supply and demand for a security at specific price levels.
It helps in understanding the potential price movements and the strength of the current market sentiment. For instance, a market with high depth is less likely to experience significant price fluctuations due to large trades, while a market with low depth might be more volatile.
What are the components of the market depth?
Market depth provides the following data:
- Acc (accumulated): This column shows the cumulative total of the order sizes up to that point in the order book. It provides a running total of the size of orders, giving an idea of the liquidity available at different price levels. For example, 3,486 is the total of 992 and 2,494 in the screenshot below.
- # (number of orders): This column indicates the number of individual orders at each price level. It shows how many separate buy or sell orders make up the total size at that price.
- Size: This column represents the total quantity of the financial instrument available for buying or selling at each price level. It is the sum of all individual orders at that price.
- Bid (buy orders): This column displays the highest price that buyers are willing to pay for the financial instrument. It represents the demand side of the market and helps you to determine the price you want to sell.
- Ask (sell orders): This column shows the lowest price at which sellers are willing to sell the financial instrument. It represents the supply side of the market and helps you to determine the price you want to buy.
To gain full access to the market depth as shown above, you must subscribe to level 2 data. Discover how to here.
How market depth can shape asset prices
ExampleLet's consider a hypothetical scenario with a stock, XYZ Corp, and its market depth as follows:
Imagine an investor wants to buy 600 shares of the stock immediately. Here is how this order might affect the price:
Resulting Impact on Price After this transaction, the lowest ask price in the market depth will move up to $101, as the 300 shares at $100.50 have been purchased. The market price effectively increases due to the demand from the investor order, as they had to buy shares at higher prices to fulfill their entire order.
This example illustrates how a substantial buy order can cause the market price to increase as it moves to higher asking prices. Conversely, a large sell order can drive the price down by using up the available shares at higher bid prices. |
Where can I view the market depth of a security?
On the platform, you can view the market depth of a security by following the steps below:
- Click on any instrument > Make sure you are in the Product Overview tab > Click Market Depth
How can I get access to market depth data?
Market data is provided on two levels with subscriptions to exchanges.
Level 2 data provides a detailed view of the order book. While level 1 data includes the best bid and ask prices along with the last traded price, level 2 data offers additional depth by displaying multiple levels of bid and ask prices.
To gain full access to the order book, you must subscribe to level 2 Data. You can do this by clicking "subscription required" when viewing the Market Depth of a security. Here you will find terms & conditions, subscription fees and more.