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.