Market depth
From Financial Literacy Wiki
Market depth is the size of an order needed to move the market a given amount (or number of bids). If the market is deep, a large order is needed to change the price. Market depth closely relates to the notion of liquidity, the ease to find a trading partner for a given order: a deep market is also a liquid market.
Factors influencing market depth include:
- Tick/bid size. This refers to the minimum price increment at which trades may be made on the market.
- Price movement restrictions.
- Trading restrictions.
- Allowable leverage/Minimum margin requirements - Major markets and governing bodies typically set minimum margin requirements for trading various products. While this may act to stabilize the marketplace, it decreases the market depth simply because participants otherwise willing to take on very high leverage cannot do so without providing more capital.
- Market transparency - The availability of the bid and ask price and its order size in different markets. The availability of such information may encourage more participants into the market, adding more depth into it.
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