Market Depth

What this unit covers

Learn to read a real order book, bid and ask sizes stacked at several price levels, and what a thick or thin book means for how far your order could move the price.

By the end you will be able to

• Explain that the visible price sits atop stacked bid and ask orders at several levels.
• Read a real order book to judge whether it is thick or thin.
• Judge whether a stated order size would move the price a little or a lot.

How it starts: The Order You Did Not Expect

1. A stock trades at 100 rupees, and you place an order for 500 shares.
2. Your order fills, but the last shares cost you 100.20 rupees each.
3. The screen showed one price, so where did that extra cost come from?

Words you will meet

Order book

The live list of waiting buy and sell orders for a stock, arranged by price.

Bid

A waiting order to buy at a stated price, sitting below the current price.

Ask

A waiting order to sell at a stated price, sitting above the current price.

Price level

One price step in the order book, holding a certain number of waiting shares.

Price impact

How much an order moves the price as it fills against the waiting orders.

In this module: Market Microstructure

1. Orders and Execution
2. Bid-Ask Spread and Liquidity
3. Market Depth (this unit)
4. Price Discovery