Depth of Market (DOM)
What Is Depth of Market (DOM)?
Depth of market (DOM) is a measure of the supply and demand for liquid, tradeable assets. It depends on the number of open buy and sell orders for a given asset like a stock or futures contract. The greater the quantity of those orders, the more profound or more liquid, the market is viewed as.
Depth of market data is otherwise called the order book since it comprises of a rundown of pending orders for a security or currency. The data in the book is utilized to determine which transactions can be handled. DOM data is available from most online brokers for free or for a small fee.
Figuring out DOM
By measuring real-time supply and demand, market depth is utilized by traders to survey the logical course of an asset's price. It is additionally used to measure the number of shares of the asset that can be bought without making its price appreciate.
In the event that a stock is very liquid, it has a large number of the two buyers and sellers. A buyer can purchase a large block of shares without causing a substantial stock price movement.
Nonetheless, in the event that a stock isn't especially liquid, it doesn't trade as continually. Purchasing a block of shares might discernibly affect the stock's price.
Depth of market is normally displayed as an electronic rundown of outstanding buy and sell orders, organized by price level and refreshed in real-time to reflect current activity. A matching engine pairs up viable trades for completion.
Most online brokers offer some form of DOM display. This permits users to see a full rundown of buy and sell orders pending execution, alongside the size of the trade, instead of just the best options available.
Instructions to Use DOM Data
Depth of market data assists traders with seeing where the price of a security might be going soon as orders are filled, refreshed, or canceled. A trader could utilize market depth data to comprehend the bid-ask spread for a stock, alongside its current volume.
Stocks with a strong depth of market will generally be famous large-cap companies like Apple (AAPL). They typically have strong volumes and are very liquid, permitting traders to place large orders without fundamentally influencing their market prices.
Securities with poor depth of market will generally be more dark companies with smaller market capitalizations. The prices of their stocks are probably going to move on the off chance that a single trader places a large buy or sell order.
The most famous stocks will generally have a greater depth of market than the stocks of less popular companies.
Having the option to see the depth of market information for a specific security in real-time permits traders to profit from short-term price volatility. For instance, when a company dispatches its initial public offering (IPO), traders can watch its DOM in real-time, waiting for the opportunity to buy or sell shares when the price arrives at the right level of demand.
Illustration of DOM
Say a trader is tracking the DOM of Stock A. The shares could currently be trading at $1.00. Yet, there are 250 offers at $1.05, 250 at $1.08, 125 at $1.10, and 100 at $1.12. In the mean time, there are 50 offers at $0.98, 40 offers at $0.95, and 10 each at $0.93 and $0.92.
Seeing this trend, the trader could determine that Stock An is going higher. Armed with that information, the trader can conclude whether this is the right time to bounce in and buy or sell the stock.
Features
- It is utilized to judge the optimal time to buy or sell an asset.
- Depth of market (DOM) is an indicator of the current interest in a stock or other asset.
- It tends to be perused as a signal of the possible heading of a stock's price.
