Market Depth
Market depth shows you all the pending buy and sell orders at different price levels. It's like seeing the battlefield before you enter it.
Market depth (also called Level 2 data or order book) reveals the supply and demand at each price point, giving you more insight than just the LTP.
What is Market Depth?
While the stock quote shows you the last trade, market depth shows:
- All pending buy orders (bids) at different prices
- All pending sell orders (asks) at different prices
- The quantity at each price level
This helps you understand where buyers and sellers are positioned.
Reading the Order Book
A typical market depth display looks like this:
| Bid Qty | Bid Price | Ask Price | Ask Qty |
|---|---|---|---|
| 500 | ₹99.80 | ₹100.05 | 1,200 |
| 1,000 | ₹99.75 | ₹100.10 | 800 |
| 2,500 | ₹99.70 | ₹100.15 | 3,000 |
| 800 | ₹99.65 | ₹100.20 | 600 |
| 1,500 | ₹99.60 | ₹100.25 | 2,000 |
Left side (Bids): People wanting to BUY at these prices Right side (Asks): People wanting to SELL at these prices
The gap between the highest bid (₹99.80) and lowest ask (₹100.05) is the bid-ask spread. Narrower is better.
Understanding Bid and Ask
Bid (Buy Side)
- Shows pending buy orders
- Higher quantity at a price = stronger support
- Buyers wait for sellers to come to them
Ask (Sell Side)
- Shows pending sell orders
- Higher quantity at a price = stronger resistance
- Sellers wait for buyers to come to them
5-Depth vs 20-Depth
Most trading platforms show:
| Type | What You See |
|---|---|
| 5-Depth | Top 5 bid and ask levels (standard) |
| 20-Depth | Top 20 levels (premium feature) |
For most trading, 5-depth is sufficient.
What Market Depth Tells You
1. Immediate Liquidity
Can your order fill at the current price?
- Large quantities at best bid/ask = Yes, easily
- Small quantities = You might move the price
2. Potential Support/Resistance
Large orders act as barriers:
- Big buy order at ₹99.50 = Price might not fall below easily
- Big sell order at ₹102.00 = Price might struggle to break above
Large orders can be pulled (cancelled) instantly. Don't rely on them as guaranteed support or resistance.
3. Order Imbalance
Compare total bid quantity vs ask quantity:
- More bids than asks = Buying pressure
- More asks than bids = Selling pressure
Market Orders and Depth
When you place a market order, it eats through the order book:
Example: You want to buy 3,000 shares with market order
| Level | Ask Price | Qty | Your Fill |
|---|---|---|---|
| 1 | ₹100.05 | 1,200 | 1,200 @ ₹100.05 |
| 2 | ₹100.10 | 800 | 800 @ ₹100.10 |
| 3 | ₹100.15 | 1,000 | 1,000 @ ₹100.15 |
Your average price: ₹100.10 – higher than the LTP!
This is called slippage, and it's why limit orders are safer.
Practical Uses
- Before buying: Check if enough quantity exists at acceptable prices
- Finding support: Large bids below current price
- Spotting resistance: Large asks above current price
- Avoiding slippage: Use limit orders when depth is thin
Key Takeaways
- Market depth shows pending orders at each price level
- Bids are buyers waiting; asks are sellers waiting
- Large orders can act as temporary support/resistance
- Market orders in thin depth cause slippage
Module complete! Now let's put your knowledge to work with your first investment.
Sources & Disclaimer
- SEBI Investor Education Guidelines (investor.sebi.gov.in)
- NSE Pathshala - Financial Literacy Program
Note: Any benchmarks (e.g., "Good ROE is > 20%", or specific P/E ranges) are simplified industry heuristics for educational purposes. True evaluation depends on specific industry context, market cycles, and individual company circumstances.