What is Market Depth?

Market Depth (MD), also known as Level 2 Market Data displays the number of Buy orders and Sell orders of each price level of a particular listed security (eg. stocks or ETFs), up to 20 levels of pending orders on each Buy and Sell side.

In simple terms, it shows the different price levels which buyers are willing to buy and sellers willing to sell at any given time where buyers are represented on the left and sellers represented on the right in the order book. MD is in real time and the orders shown changes constantly during pre-open session to market close.

It allows investors and traders to enhance trading decisions by checking stock liquidity, optimising buy / sell orders, and establishing price support / resistance.

It is used for 3 key reasons:

1. Checking Liquidity (illiquid stocks usually have higher volatility)
2. Optimising Orders
3. Establishing Demand and Supply (Support and Resistance)

I'm also learning how market depth can aid in trading. More details provided in the SGX guide as attached.

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11 likes 1 share 14 comments
ack

Grey area i see can create false impression when tricky buyer/seller can queqe price/quantity and subsequently withdraw to test its market sentiment. Just my view only.

YokeMing

Reply to @ack : yeah, kindly refer to my comments below as well...I mentioned about fake queues before :)

YokeMing

I think Market Depth is actually the same as Order Book. Please correct me if I'm wrong, thanks!

wrongwrong

Thanks for sharing...

YokeMing

Reply to @wrongwrong : Newbie is ok...eventually experience will come. Don't worry.

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clim

but market depth is not free right? any brokerage provides it free?

YokeMing

Reply to @sUp3rb0s : Yeah, it could be robots behind those queues.

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