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What is the depth of the market? Introducing the market depth chart

The concept of market depth includes the potential, ability and maximum capacity of a financial market (including stock market, forex and cryptocurrency). According to the short definition provided by, market depth is the ability of the market to attract relatively large orders, regardless of the effect of the price of securities. In general, the depth of a market is a broad level of Open orders (open orders) and Business proposals and usually refers to trading in a particular security. Usually, the more buy and sell orders are registered in a financial market, the deeper the market becomes.

The main condition for evaluating the depth of a market is that the orders are spread relatively evenly around the current market price of a security or digital currency. But what is the role of the concept of market depth in investment and why should you learn to analyze its charts well? In this article from Wallex blog, we will examine the definition and mechanism of the concept of market depth and provide some examples for a better understanding of this concept.

The basics of defining the depth of a financial market at a glance

According to information from, the concept of market depth includes several fixed and unchangeable principles. These basic principles, which are required to be considered to understand this concept, are:

  • Market depth refers to the liquidity of a financial market and the number of standing orders for buying and selling at different price levels.
  • In addition to the price levels of a security, stock or digital currency, one should also pay attention to the order size.
  • The deeper the market, the less likely large trades will affect the stock price.
  • The depth of the market can be defined by checking the level 2 prices found in the order book of securities.

Understanding the concept of market depth

The depth of the market, which is abbreviated in the world of financial market terms DOM It is mentioned that it has a direct relationship with the liquidity and volume of transactions of a market. Of course, this definition does not mean that every stock that has a high trading volume has a high market depth. The concept of market depth can be evaluated by examining the order book of a security; This book usually contains a list of orders to buy and sell at different price levels. Many analysts refer to the concept of market depth as a functional indicator that shows the extent to which a large trading order affects the price of a stock or digital currency.

Also, the concept of market depth is one of the important criteria and indicators for examining low-volume stock transactions and futures contracts. Market depth is considered by some analysts as an important indicator for easy and hassle-free trading. For example, when a financial market is deep, the amount of time traders have to wait for buy and sell orders to be executed is minimized and trading is done easily. If a trader or a group of investors want to influence the depth of a market, they must make a high and significant volume of buying or selling transactions.

By conducting high-volume buying and selling transactions, the price of the desired securities, stocks or digital currency changes and the depth of the market is defined in a different way. However, if a financial market is deep, it can be said that there is a sufficient volume of buy and sell offers and traders can operate easily. Many experts mention the market depth as a practical and effective tool for Easy Trader transactions.

Check out an example of the DOM concept

Market depth chart

Depth of Market, or DOM, is usually presented in the form of tables where you can see the current bid and ask prices of traders. Note that market depth is used for 2 main reasons:

  1. Knowledge about the general liquidity of a financial market
  2. Determining whether a large trade can cause price movements in the market

The first reason is important for individual investors and the second for large institutional investors. In the following, we have provided an example of a hypothetical stock to better understand the depth of the market. This table is a simulated example of how to show market depth by famous brokerage companies such as Interactive Brokers or TD Ameritrade is:

Volume Demand ($) Offer ($) Turnover
25 5.10 5.00 150
50 5.30 5.25 125
100 5.56 5.50 100
125 5.80 5.75 100
150 6.10 6.00 75

The first column from the left (trade volume) shows the amount or volume of stock purchases in a certain price range. The first column from the right (volume) indicates who is willing to sell a stock or security at that bid price. The difference between these 2 columns is in the price difference of the market offer. There are few traders who want to buy a stock when its price is going up. Most investors tend to sell their stocks, securities or digital currencies when their prices have increased or are going up.

You can use the table as an example as a tool to determine the price of large orders. For example, suppose you need to place a buy order for 175 shares. You can buy 25 shares for $5.10, 50 shares for $5.30 and 100 shares for $5.56. Of course, note that a complete understanding of the concept of market depth does not end with this one small example. To check more examples, it is better to read digital currency market analysis sites continuously and get help from an experienced investor in this field.

How traders use the concept of market depth

Market depth data helps traders determine the price movements of a particular security, stock or cryptocurrency. For example, a trader may use market depth information to understand the bid-ask spread for a security. Securities with high market depth usually have high volume and are liquid. These bonds allow the trader to place large orders without considering their impact on the market price. At the same time, if the buy or sell order is large enough, securities with shallow depth can also be profitable.

Market depth information and data usually exists as a list of buy and sell orders in the order book. This data is categorized by price level and can be updated at any time. In the not so distant past, market depth data was not free and had to be paid for. Nowadays, most of the trading platforms provide investors with market depth tools for free to attract more traders.

Market depth concept data at the right times allows traders to profit from short-term price fluctuations. For example, suppose that a public company has started its trading process for the first time. Active traders in this company’s shares can resist strong buying demand and show that the company’s stock price can continue its upward trend.

Investigating the mechanism of market depth in financial markets

Use market depth

Market depth is usually available in trading software or on the websites of various brokers. This concept paints a picture of buying and selling opportunities for all financial markets (forex, stock market, cryptocurrency, etc.) and for all stocks (except the stocks with the lowest trading volume). When a large order (buy or sell) is placed for a stock, it is possible to influence the market by taking all available shares at various bid levels. Simply put, the market assumes that people who place large orders have more or more comprehensive information than people who place small orders.

However, if a large buy order is placed, small traders will compete to join the trade. Another group that affects the concept of market depth is liquidity providers. If there is no liquidity in the stock or cryptocurrency, it is not possible to accept full orders and traders are forced to use several different platforms to enter a significant position.

Of course, don’t forget that you can monitor the depth of the market and price movements by checking the directions of the orders. For example, if 60% of the orders are for buys and the remaining 40% are for sells, the price of the stock or cryptocurrency is likely to increase due to buying pressure.

The concept of market depth in individual investments

Market depth and individual investment

Market depth is important for individual investment as well as measuring the level of general liquidity in a financial market. There are few individual investors who can drive the market for most stocks or bonds. Of course, there are exceptions; For example, retail stocks traded in over-the-counter (OTC) financial markets are likely to be so liquid that individual investors are forced to delve deeper into the market. Additionally, if individual investors do not have the purchasing power to invest in many stocks and if liquidity is low, they can be affected by market conditions.

For example, suppose that a large commercial institution owns 10% of the shares of a financial market and now decides to sell it; If the depth of the market is low, the stock value of this large business institution will fall. The depth of the market compared to other influential factors such as bad news or rumors have a greater impact on the stock value; Because a trader or investor has no control over it. To understand the concept of market depth and individual investment as much as possible, always keep these few points in mind:

  • Market depth is considered as a measure to examine the impact of a large transaction on the stock price
  • The depth of the market is evaluated as a set of buy and sell offers with different prices and around the current market price.
  • Traders can use market depth to identify support and resistance levels
  • Investors and traders can use the concept of market depth to understand whether a stock is moving based on the ratio of buyers to sellers.

The application of market depth in the cryptocurrency market

The concept of market depth with the title Depth Chart (deep chart) is known in the cryptocurrency world. This chart shows the amount of supply (selling profit) and demand (buying profit). The concept of depth in cryptocurrency charts refers to the ability of the market for a particular cryptocurrency to sustain large orders (buy and sell) without significant price changes.

In the world of digital currencies, the more pending orders from both sides are registered in the order book, the deeper the order book is. In simpler words, the more the number of pending orders, the deeper the cryptocurrency market. In the graphs, if the green part is higher than the red part, it indicates the tendency to buy more (below the current market price) than sell profit (above the current market price). Of course, the reverse trend of this process also exists and it applies to the digital currency market.

DOM, important and practical

The concept of depth of market (DOM) is an important issue for identifying the volume of buy and sell orders and following price movements in financial markets, especially in cryptocurrency. Professional traders make their trades using the concept of market depth in cryptocurrency charts and graphs as an indicator. You can also increase your knowledge in this field and raise your level as a trader. What do you think about chart analysis related to market depth? Do you think this concept can be used as a practical indicator?

By providing various facilities and capabilities, the Iranian Valex exchange has provided you with the opportunity to carry out all kinds of cryptocurrency transactions. You can do all kinds of digital currency transactions and analyze charts related to cryptocurrency by using different sections of Valex website. Also, it is possible to increase knowledge and important information about the digital currency market in the Wallex blog.

What is market depth? Introducing the market depth chart for the first time on Wallex blog. appeared.


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