What Is Depth of Market (DOM)?
Depth of market (DOM) is a measure of the provision and demand for liquid, tradeable assets. It is in keeping with the number of open acquire and advertise orders for a given asset comparable to a stock or futures contract. The bigger the quantity of those orders, the deeper or further liquid, {the marketplace} is considered to be.
Depth of market wisdom is also known as the order information as a result of it’s composed of a listing of pending orders for a security or foreign exchange. The information inside the information is used to get to the bottom of which transactions can be processed. DOM wisdom is available from most online brokers totally free or for a small worth.
Understanding DOM
By the use of measuring real-time supply and demand, market depth is used by patrons to guage the probably course of an asset’s price. It is also used to gauge the number of shares of the asset that can be bought without causing its price to appreciate.
If a stock is very liquid, it has numerous each and every shoppers and sellers. A buyer must acquire a large block of shares without causing a substantial stock price movement.
Then again, if a stock is not in particular liquid, it does no longer industry as incessantly. Purchasing a block of shares will have a noticeable have an effect on on the stock’s price.
Depth of market is typically displayed as an virtual list of exceptional acquire and advertise orders, organized thru price degree and up-to-the-minute in real-time to copy provide procedure. An similar engine pairs up appropriate trades for crowning glory.
Most online brokers offer some form of DOM display. This allows consumers to seem an entire list of acquire and advertise orders pending execution, in conjunction with the size of the industry, rather than just the most efficient possible choices available.
Key Takeaways
- Depth of market (DOM) is a trademark of the current pastime in a stock or other asset.
- It can be be informed as an indication of the probably course of a stock’s price.
- It is used to judge the optimal time to buy or advertise an asset.
Learn how to Use DOMÂ Wisdom
Depth of market wisdom helps patrons see where the price of a security is also heading inside the as regards to longer term as orders are stuffed, up-to-the-minute, or canceled. A broker might use market depth wisdom to grasp the bid-ask spread for a stock, in conjunction with its provide amount.
Stocks with a strong depth of market tend to be trendy large-cap corporations like Apple (AAPL). They in most cases have strong volumes and are fairly liquid, allowing patrons to position massive orders without significantly affecting their market prices.
Securities with poor depth of market tend to be further obscure corporations with smaller market capitalizations. The prices of their stocks are vulnerable to switch if a single broker places a large acquire or advertise order.
The most popular stocks generally tend to have a greater depth of market than the stocks of lesser-known corporations.
Being able to view the depth of market wisdom for a selected protection in real-time lets in patrons to profit from short-term price volatility. For example, when a company launches its initial public offering (IPO), patrons can watch its DOM in real-time, taking a look forward to the risk to buy or advertise shares when the associated fee reaches the most productive degree of name for.
Example of DOM
Say a broker is tracking the DOM of Stock A. The shares might in recent times be purchasing and promoting at $1.00. On the other hand there are 250 offers at $1.05, 250 at $1.08, 125 at $1.10, and 100 at $1.12. Within the period in-between, there are 50 offers at $0.98, 40 offers at $0.95, and 10 each and every at $0.93 and $0.92.
Seeing this building, the broker might get to the bottom of that Stock A is going higher. Armed with that knowledge, the broker can decide whether or not or no longer this is the most productive time to jump in and buy or advertise the stock.
