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Market Depth


RateCity Staff

By RateCity Staff

2 min read

Market depth is an important concept in understanding how the stock market works. A market depth report will tell you the number of trades ??? both buying and selling ??? for a given security. It will also tell you the size and value of those trades, so you can understand exactly what???s been happening in the market for that security. For example, there are some very small stocks that do not have many trades per day ??? so a market depth report for these stocks will show you a very small number of trades. As a result of this lack of market depth, you might be wary of buying the particular stock, because you might be justifiably concerned that if you wanted to sell it, there won???t be many prospective buyers most of the time. At the other end of the spectrum, there are some heavily-traded stocks ??? for example, the stocks that make up the ASX-100, which is a key index of the largest 100 companies on the stock exchange by market capitalisation. For these stocks, a market depth report will show you a large number of trades, and you might want to use this report in this case to understand the prices that are being made over the course of a trading day. Most online brokers will provide market depth reports as part of their packages to investors; you should always compare the quality and comprehensiveness of market depth statistics, as it will help you become a more informed investor.

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