Market depth

How many units are resting as orders near the current price - what a market can absorb before the price itself moves.

Example

A book with 40 units wanted at 402.00 and the next 60 at 401.00 is deep enough for a 40-unit trade and not for a 300-unit one.

Important

Depth belongs to people who can withdraw it, and they withdraw it during declines, which is exactly when a seller most needs it. Depth measured on a calm day is not a promise about a bad one.

Related terms

• Order book — The live, price-ranked list of all resting buy and sell orders for a security, showing how many shares are available at each level on each side.
• Slippage — The gap between the quoted price and the average price a trade actually achieves, caused by consuming successive levels of the order book.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Bid-ask spread — The gap between the highest price a buyer will pay and the lowest a seller will accept. A cost paid on every round trip.

Lessons that explain it

• Many venues, no closing bell, no reference price — The quote is for the next unit, not for your position, and there is no official price anywhere. What valuation models exist for this class are contested in a way that a bond discount or an equity multiple simply is not. (12 min)
• Seven questions about one specific asset — What it does, who can issue more of it, who already holds it, how deep the book is, whether the rules can be changed, where you would keep it, and what would tell you that you were wrong. (14 min)

All 578 terms in the Investing glossary