Have you wished for a more in-depth view of buyer and seller queues before placing your orders?
Imagine going to an auction and knowing an estimate of the buyer and sellers in the same room, before you decide on placing your bids. "Market Depth" likens to this, providing you the buyer and seller queue info for each and every stock.
How To Access Market Depth On LimTan Channels?
Online Trading Platform
Step 1: Right-click on the name City Dev, and select "Market Depth".
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Step 2: Market Depth screen opens
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Mobile Apps
Here's an example for City Dev.
Step 1: Tap on City Dev and select "Market Depth".
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Step 2: Market Depth screen loads
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How To Interpret Market Depth Data?
Using City Dev as an example:
(Illustration for Online Trading Platform. Mobile Apps will similar.)
LEFT SIDE
(Buy side) shows the different buy price levels and corresponding buy volumes on queue, at that point of time. The best buy price for City Dev is $12.60, with 29,000 shares on queue. At $12.59, there are 9,700 shares on queue. As we go lower in prices, there are less shares on queue as the prices are far away.
RIGHT SIDE
(Sell side) shows the different sell price levels and corresponding sell volumes on queue, at the same point of time. The best sell price for City Dev is $12.61, with 51,600 shares on queue. At $12.62, there are 45,600 shares on queue.
Note that during market hours, for hot stocks, market depth can change as fast as your eyes blink. Everything is live: because buyers and sellers are placing or withdrawing orders too.
Let's say you are intending to buy some City Dev.
Instead of rushing in to buy at $12.61, you can consider placing your order at $12.59, because the queue is less for this price (9,700 shares). Also, judging from the fact that City Dev's low for the day is $12.57, queuing at $12.59 is not at the lowest, neither is it below the lowest price, giving you a chance of getting it at $12.59. (A practice I always consider). If you have patience and a possible opportunity to buy it at $12.59, why not?
Supposing you had placed the buy order of 1,000 shares @ $12.59, then you would see that the market depth at $12.59 would immediately change, to reflect 10,700 shares. (It is live, your order is in!)
Now, let's say you are intending to sell some City Dev.
If you are not in a hurry to sell City Dev, and don't mind waiting for a better price, then you can consider placing a long dated order at $12.67, with only 2,000 shares on queue. The high for City Dev for the day is $12.71, which still puts you within the day's range. Being a long dated order, if the order is not done within the day, the order is fed again the next day, till the expiry date.
Checking Liquidity Before Buying
Market Depth can help you get a sense of a stock's liquidity.
What is Liquidity? In simple terms, liquidity means the extent to how easy it is to buy and sell a stock. The more buyers and sellers, the more liquid the stock is. Liquidity is important, because you wouldn't want to be buying into a stock and then not be able to sell it at the price you want, during a crisis, or when the price goes up.
Here are examples of a liquid vs an illiquid stock.
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| Market depth of a liquid stock |
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| Market depth of illiquid stock |
Disadvantages of trading in an illiquid stock:
1. May end up buying at higher price / selling at lower price
- For the illiquid stock example above, if you wish to buy immediately, you would have to buy at $0.585 onwards. If you wish to sell immediately, you would have to sell at $0.50 and below. Beyond $0.50, it's $0.18! 😱
2. May end up getting partial orders done
- For the illiquid stock example above, say, you wish to buy 2,000 shares at $0.585. At that moment, you are only able to buy 400 shares $0.585, leaving you with 1,600 undone shares. This can result in paying additional brokerage for multiple trades over a few days.
3. Exposed to high volatility when large orders are done
- If someone were to sell down 20,000 shares @ $0.50, the next buy price is $0.18 which is ridiculous!
Hence, with market depth, you will be able to avoid illiquid stocks, and not subject yourself to unnecessary losses.
Liquid stocks offer better price execution as there are ample buyers and sellers to fill orders. Your liquid stocks will also be less subjected to large volatility.
Have a question about market depth? Feel free to contact Lyndell.
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