how to read market depth chart

It is also used to gauge the number of shares of the asset that can be bought without causing its price to appreciate. Fortunately, there are several sources to get accurate international market depth data for almost any asset you can think of. For example, Interactive Brokers comes with real-time data feeds from markets worldwide. However, most premium stock trading or analysis apps should also offer market depth. For real-life markets, a similar table exists known as the market depth chart.

If the depth chart is tilted to the left, it means that the asset is illiquid, and the price will potentially increase because demand is higher than supply. On the other hand, if the chart is tilted to the right, it means the asset is sufficiently liquid, and prices are more likely to stabilise or decline because supply is more than demand. The chart is split between two sides, left and right, representing the demand and supply of different price levels.

Horizontal Axis

If a stock is extremely liquid, it has a large number of both buyers and sellers. A buyer can purchase a large block of shares without causing a substantial stock price movement. Imagine a fictional stock market with only five users, all placing buy and sell orders for the same stock at varying levels. All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on

how to read market depth chart

As an example, let’s look at Apple (AAPL), currently the largest stock by weight in the S&P 500. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. Any uneven tendencies will be depicted as the graph skews to either side, representing a market shortage or excessive liquidity. Long hours of reading and writing are my bread and butter, and my curiosity is the catalyst to becoming the experienced writer I am. I excel at writing in English and Arabic languages, and I am endlessly looking to explore new realms and endeavours.

Components Of A Depth Chart

It’s worth noting that while centralised exchanges offer convenience, liquidity, and a wide range of trading pairs, there are certain risks. Since CEXs act as custodians of users’ funds, there is a potential for security breaches, hacking incidents, or mismanagement of funds. Mastering technical analysis is crucial for traders, I suggest exploring the Coin Bureau Trading Channel for valuable educational material on this topic. There, you’ll find an abundance of expertly curated content by our skilled trading champion, Dan, who is a fully funded professional trader.

Market depth refers to a market’s ability to absorb relatively large market orders without significantly impacting the price of the security. Market depth considers the overall level and breadth of open orders, bids, and offers, and usually refers to trading within an individual security. Though not often used in futures trading, cryptocurrency traders consider the depth chart a mainstay in determining market sentiment. These are just a few examples of charting software available for crypto trading.

Cryptocurrency Brokers & Exchanges

Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we how to read market depth chart encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Analysing the depth chart is crucial regardless of the studied asset class.

  • Still, the main benefit of trading crypto is the low barrier to entry.
  • This article aims to guide you through the nuances of market depth data and how to leverage it for your trading strategies.
  • Real-time market depth data allows traders to profit from short-term price volatility.
  • A moving average is a stock’s average price over a particular period of time.
  • Other than these, we have found there are few platforms that offer the DOM capabilities as needed.
  • Securities with poor depth of market tend to be more obscure companies with smaller market capitalizations.