Market depth and book order are two crucial aspects of trading that are often used by traders and investors to make informed decisions. Market depth shows the quantity of shares available at different prices, while book order represents the order book, which contains the bids and offers of all traders at a specific time. This article aims to provide a comprehensive analysis of market depth and book order, their differences, and how they are used in trading systems.

Market depth

Market depth, also known as depth of book, shows the quantity of shares available at different prices. It is usually displayed in decimals or fractions, with the higher prices on the left and the lower prices on the right. For example, a price of $100.00 with a 50 share quantity available means that there are 50 shares available at that price, while a price of $99.99 with a 50 share quantity available means that there are 50 shares available at that price.

Market depth can be useful for traders and investors to gauge the availability of shares and potential price movements. For example, if the market depth at a specific price is small, it may indicate that there is limited supply at that price, which could lead to a price increase. Conversely, if the market depth at a specific price is large, it may indicate that there is a large supply at that price, which could lead to a price decrease.

Book order

Book order, also known as the order book, shows the bids and offers of all traders at a specific time. It is divided into two sections: the bid book and the offer book. The bid book contains all the offers of traders, while the offer book contains all the bids of traders. The order book is usually displayed in two columns, one for bids and one for offers.

Book order can be more useful for traders and investors to understand the overall sentiment and liquidity in the market. By analyzing the order book, traders can gauge the strength of bids and offers, which can help them make better decisions about when to enter or exit a trade. For example, if the offer book is heavy, it may indicate that there are many traders willing to sell at the current price, which could lead to a price decrease. Conversely, if the bid book is heavy, it may indicate that there are many traders willing to buy at the current price, which could lead to a price increase.

Differences between top of book and market depth

Top of book and market depth are both important aspects of trading, but they serve different purposes. Top of book refers to the highest price at which traders are willing to execute a trade, while market depth shows the quantity of shares available at different prices. While both can be useful for traders and investors to make informed decisions, their use and interpretation can vary depending on the trader's preferences and trading strategies.

For example, a trend follower may prefer to use top of book data to identify potential trade sets, while a position trader may prefer to use market depth data to gauge the availability of shares and potential price movements. Therefore, it is essential for traders and investors to understand both top of book and market depth in order to make informed decisions in the financial markets.

Market depth and book order are crucial aspects of trading that can help traders and investors make better decisions about when to enter or exit a trade. While top of book and market depth may seem similar at first glance, they serve different purposes and can be used in different trading strategies. By understanding both top of book and market depth, traders and investors can gain a deeper understanding of the market and make more informed decisions.