Market Depth

The price I see is never the whole picture — what's stacked behind it tells me how much it can actually hold.

• Explain that the visible stock price is just the top of a stack of waiting buy (bid) and sell (ask) orders spread across multiple price levels.
• Read a real Level 2 order-book table to identify how much size is stacked at each nearby price level on both the bid and ask side.
• Judge whether a given order book is 'thick' or 'thin', and use that judgment to anticipate whether an order of a stated size would move the price a little or a lot.
• Distinguish what order-book depth actually tells you (current standing intentions, likely price impact) from what it does not tell you (future price direction).

When you look at a stock's price on your app, it feels like a single, solid fact — "this stock is ₹100." But that number is just the last place a buyer and seller happened to agree. Right below and above it sits a whole queue of people waiting: buyers who've placed orders to buy at slightly lower prices, and sellers waiting to sell at slightly higher prices. This queue is called the order book, and this view of it — showing several price levels at once instead of just the best one — is called Level 2 depth.

At each price level, there's a size: how many shares are waiting there. A bid is a waiting buy order, sitting below the current price. An ask is a waiting sell order, sitting above it. When you place an order, you don't just get "the price" — you get matched against whatever is stacked at each level, working outward from the best price until your full order is filled.

This is where thick and thin books matter. A thick book has large sizes stacked at each price level — hundreds or thousands of shares waiting at the very first level. An order of ordinary size gets completely absorbed by that first level, so the price barely moves. A thin book has small sizes at each level — maybe only a hundred shares at the best price. The same order size quickly uses up that level and has to reach into the next one, and the next, each at a slightly worse price. This is called price impact: the gap between the price you expected and the price you actually end up paying, caused by "eating through" multiple levels.

The number you see is only useful once you know how much is standing behind it.

Reading depth means training your eye to look past the single best bid or ask and scan several levels down the stack on both sides — bid sizes and ask sizes — before judging what an order of a given size would actually do.

The number you see is only useful once you know how much is standing behind it.

None of this tells you where the price is headed next. A thick or thin book only shows you the standing intentions of other traders right now — not a forecast. What it does tell you, reliably, is how much your own order is likely to move the price if you place it now. That's a very different — and very practical — kind of knowledge.

Say a trader wants to buy 500 shares of a stock currently trading at ₹100. Looking only at the last traded price, ₹100 seems like the deal. But the order book tells a different story.

On the ask side, level 1 shows ₹100.05 with 120 shares available. Level 2 shows ₹100.10 with 150 shares. Level 3 shows ₹100.20 with 300 shares. The trader's order for 500 shares can't stop at level 1 — there are only 120 shares there. So the order takes all 120 at ₹100.05, then moves to level 2 and takes all 150 at ₹100.10, and still needs 230 more shares, which it takes from level 3 at ₹100.20. The last shares in that order are bought at ₹100.20 — fifteen paise above the very first price the trader saw, and the average price across the whole order lands somewhere between ₹100.05 and ₹100.20, clearly above the best ask alone. That gap is the price impact of a thin book.

Now picture a second stock, same current price, same order size — but a thicker book. Here, level 1 alone holds 600 shares at ₹100.05. The trader's 500-share order never even reaches level 2. The entire order fills at ₹100.05, with zero price impact.

Same trader, same order size, same starting price — but two very different outcomes, because of what was stacked behind the price, not the price itself. That's the whole reason to glance at the depth before placing the order: it tells you in advance which of these two situations you're walking into.

Point: The same order size produces very different price impact depending on how thick or thin the book is — reading the stacked sizes across levels, not just the best price, tells you which outcome to expect before you click.

• Treating the last traded price as the whole picture of what a stock is worth or how easy it is to trade. — Trading apps prominently display only the last traded price, so it's the only number most learners have ever consciously looked at. Fix: Remember the last price is just the most recent match already completed — check the order book to see what's waiting right now, which is what will actually determine your price impact.
• Assuming a thin order book means the stock is risky or something is wrong with it. — 'Thin' sounds inherently negative, and unfamiliar depth feels unpredictable. Fix: Treat a thin book as a neutral fact about current liquidity at that moment — it just means you should expect more price impact and size your order accordingly, not that the stock is unsafe.
• Reading the order book as a signal for which way the price will move next. — Seeing more size stacked on the buy side than the sell side (or vice versa) feels like a hint about future direction, similar to momentum. Fix: Remember depth only shows current standing intentions, not the future — use it to judge likely price impact of a trade now, never to predict tomorrow's price.

• The visible price is just the top of a stack of waiting bid and ask orders at multiple price levels.
• A thick book absorbs an order with little price change; a thin book gets 'eaten through' quickly, causing bigger price impact.
• Reading depth means scanning several price levels on both sides, not just the single best bid or ask.
• Depth tells you likely price impact right now — it never predicts where price is headed next.
• Glance at the order book before placing a real order so you can anticipate impact instead of being surprised by it.

Q1. In an order book, what is a 'bid'?

• A waiting buy order sitting below the current price
• A waiting sell order sitting above the current price
• The last price at which a trade was completed
• The total number of shares traded in a day Answer: A waiting buy order sitting below the current price — A bid is a waiting order to buy, placed at a price below the current best price. Asks are the waiting sell orders, placed above it.

Q2. A stock's order book shows only small sizes stacked at each price level near the current price. What does this 'thin' book most likely mean for a fairly ordinary-sized order?

• The order will likely need to eat through several price levels, causing more price impact
• The order will definitely fill at exactly the last traded price
• The stock is unsafe and should not be traded
• The price will definitely rise right after the order is placed Answer: The order will likely need to eat through several price levels, causing more price impact — A thin book has small sizes at each level, so an ordinary-sized order quickly uses up the first level and has to reach into worse prices at the next levels, producing more price impact. It doesn't mean the stock is unsafe or that price direction is predictable.

Q3. True or False: Looking at the order book depth can tell you which direction a stock's price will move next. Answer: False — Depth only shows the current standing intentions of buyers and sellers right now — it tells you about likely price impact of a trade today, not where the price is headed tomorrow.

Q4. A trader wants to buy 400 shares of a stock. The ask side shows: Level 1 at ₹50.00 with 500 shares, Level 2 at ₹50.05 with 200 shares. What will most likely happen to this order?

• The entire order fills at ₹50.00 with little to no price impact
• The order fills partly at ₹50.00 and partly at ₹50.05
• The order cannot be filled at all
• The order will automatically fill at Level 2's price only Answer: The entire order fills at ₹50.00 with little to no price impact — Since Level 1 alone holds 500 shares, which is more than the 400 shares needed, the whole order gets absorbed at ₹50.00 without needing to touch Level 2 — this is what a thick book at that level looks like.

Q5. A trader wants to buy 1,000 shares and sees Level 1 showing 800 shares at ₹50.00, and assumes: "My whole order fills at ₹50.00 since that's the price on my screen." Will the entire order fill at ₹50.00? Reveal: Weak: yes, ₹50.00 is the price shown, that's what he'll pay. Strong: only 800 shares are available at ₹50.00 — the remaining 200 spill into the next price level, meaning the average price paid will be higher than the screen price; checking only the top price hides the real cost of a larger order.