What is Stock Depth Screen in the Stock Exchange How to Read Depth in the Stock Market?

What is Stock Depth Screen in the Stock Exchange How to Read Depth in the Stock Market

It is very important for market participants to understand the functioning of financial markets and to accurately evaluate the price formation mechanism.

During the continuous auction of the stock markets, the price and time priority rule is applied behind the order matches and the orders placed in the pending order status are listed within the framework of this rule. The screen that shows the status of this sequence at different price levels is called the depth screen, and investors who want to purchase depth screen data can access this data by paying the determined fee.

In this context, questions such as what depth means, what is depth screen or how to interpret depth screen are among the questions frequently sought answers by those interested in the market. Therefore, before discussing the subject in detail, let's start our article by briefly explaining what the depth screen is in the stock market.

What is Depth Display?
It is data usually presented in tabular form and shows how many buy and sell orders there are at what price levels for a particular investment instrument (for example, a stock). Additionally, on some depth screens, information on how many buyers or sellers there are at which price level can also be displayed.

Thanks to the depth screen, investors have the opportunity to better understand the current supply and demand conditions of the relevant instrument, while depth screen data also contributes to the transparency of financial markets.

How to Read Depth in the Stock Market?
Financial markets are an area of interaction between buyers and sellers. While every buyer creates demand, every seller creates supply. Prices are determined at the intersection of this demand and supply. In other words, both buyer and seller must be present when any transaction occurs. Now let's take a closer look at this process:

During a market continuous auction session, each buyer and seller places orders to buy or sell at a certain price level (limit price orders) or at the current market price (market orders). Market orders are converted into transactions instantly when a suitable buyer or seller is found. Limit price orders are placed among pending orders when there is no counter order at a suitable price level. The orders we see on the depth screen consist of the pending orders we mentioned here.

Sent limit price orders are sorted according to the price and time priority rule. According to this rule, orders with the highest price in buying and orders with the lowest price in selling have priority over others. Therefore, unless the buy or sell orders waiting at the top level in the depth screen are converted into transactions or cancelled, orders at other levels cannot be moved.

Limit price buy or sell orders transmitted to the market are matched with buy and sell orders at the limit price or a better price, if any. Since some of the transmitted orders are not matched with another order at the same price level or a better price, they remain on the board as passive pending orders - unless they are cancelled. As you know, today all this is done electronically. Since orders were written and erased on the board throughout the history of the stock market, order screens are still referred to as boards.

It is also possible to interpret the presence of high orders in quantity against a small number of buyers or sellers at a certain level in the depth screen as the presence of relatively large buyers or sellers at that level. We can also make a similar comment when a large amount of active buying and selling occurs at once.
Conclusion
The orders appearing on the depth screen reflect the demands and supplies of market participants and show the total of pending buy and sell orders at a certain price level. However, it is not possible to predict when and in what quantities these orders will be executed or in which direction (active buying or active selling).

The levels you see on the depth screen and the buying or selling amounts at those levels only give us an idea about that moment, whether those price levels will be easier or more difficult to overcome than other levels. If there are many pending orders for buying, prices have a stronger resistance to falling, and if there are many pending orders for selling, prices have a stronger resistance to rising. In addition, it can be interpreted that in case of high volume orders waiting at certain levels, it will be difficult to pass that level up or down.

While buy orders support prices, sell orders act as resistance to prices. Additionally, the presence of a large number of orders at a particular price level despite a small number of buyers or sellers may provide a clue that there is a large investor at that price level.

As a result, the depth display can be considered as a helpful data for market participants to evaluate price movements and determine trading strategies. On the other hand, evaluating the depth screen together with brokerage firm and exchange data can take the analysis to a further level.

Finally, it should be noted that since financial markets are very dynamic, choosing stocks based solely on stock depth screen interpretation always involves risk; because it is not possible to accurately predict future market movements using the depth display alone. Therefore, it is important to remember the importance of doing further research and considering market trends and other factors.