Depth of Market (DOM): From Basics to Evolution | Bookmap (2024)



Depth of Market (DOM): From Basics to Evolution | Bookmap (1)

What sets successful traders and investors apart from others in the market?
Can you, too, profit from financial markets? What are some must-have skills
to succeed?

To execute profitable stock market trades, you must develop the ability to
make rapid decisions and gauge market sentiments.

To acquire this skill, you must have a thorough understanding of market
supply and demand. This is where the concept of Depth of Market (DOM), also
known as the order book, comes into play.

Through this article, we will first understand the basics and then gradually
unravel the core components that make up DOM. We will also emphasize its
dynamic nature, where every new order, cancellation, or trade has a direct
impact on the order book. Let’s begin.

The Basics of Depth of Market (DOM)

To grasp the essentials of the Depth of Market, let’s start by defining it
and dissecting its key components.

What is DOM?

Depth of Market (DOM), often referred to as the order book, is a real-time
representation of the supply and demand for a particular financial
instrument. It provides information about current market conditions,
including the prices at which people are willing to buy and sell an asset.

What are the Components of DOM?

There are three basic components of DOM:


Bid Price

Ask Price

Price Levels


Bids are the prices at which potential buyers are
willing to purchase the asset.

Asks, also known as offers or sell orders, are the
prices at which sellers are willing to sell the asset.

The price levels represent the range of prices at which
orders are currently placed, from the highest bid to the
lowest ask.

Order of Listing

These prices are listed in descending order, with the
highest bid positioned at the top.

These prices are listed in ascending order, with the
lowest ask positioned at the top.

Traders can see a series of prices and corresponding


The bid quantity represents the total number of units or
contracts that buyers want to purchase at a specific

The ask quantity represents the total number of units or
contracts that sellers are offering at a specific price.

Price levels help them understand the current market

What are the Buy Sides and Sell Sides of DOM?

  • The buy side of the DOM:

    • Represents the demand side of the market.

    • Shows the willingness of buyers to acquire the asset at various
      price levels.

  • The sell side of the DOM:

    • Represents the supply side of the market.

    • Shows the offers from sellers to sell their assets at different
      price levels.

How Dynamic Is DOM?

The DOM is highly dynamic and changes constantly due to:

When traders place new buy and sell orders, these orders are added to their
respective sides of the DOM. When orders are filled or canceled, they are
removed from the DOM. Most traders often use this dynamic nature of DOM to
make several decisions, such as:

  • Choosing the best price at which to execute a trade or

  • Identifying potential support and resistance levels.

The Evolution of DOM

Traditionally, Depth of Market (DOM) originated as text-based order books.
These order books were essentially physical or manual records of buy and
sell orders that traders and brokers would maintain. Traders would
physically write down orders on paper or record them in ledger books.

This text-based system allowed market participants to see the current bid
and ask prices and the corresponding order quantities. However, it was a
slow and manual process, susceptible to human error.

Depth of Market (DOM): From Basics to Evolution | Bookmap (2)

How The Transition Happened to Spreadsheets

In the late 20th century, text-based order books evolved and transitioned to
spreadsheets. This change allowed for more efficient record-keeping and
calculations. Traders and brokers could now use computer software to manage
order books in a digital format. This shift greatly improved order entry and
record-keeping accuracy.

How Spreadsheets Evolved into Dynamic Digital Ladders

The adoption of electronic trading platforms in the late 20th and early 21st
centuries revolutionized trading. These platforms digitized the entire
trading process, from order placement to execution. As a result, order books
transitioned from being physically maintained to being displayed in
real-time on computer screens.

Apart from the development of electronic trading platforms, several other
major events supported this transition. These are:

  • Many traders started
    High-Frequency Trading
    (HFT). This led to a demand for faster and more responsive order
    book displays.

  • Sophisticated market data feeds started evolving allowing traders to
    access up-to-the-second information from various financial markets.
    These feeds were instrumental in the development of dynamic digital

  • Over time, algorithmic trading became more prevalent. Now, traders
    require advanced order book visualization tools to implement
    automated trading strategies.

Why Traders Rely on DOM

Traders rely on the Depth of Market for a range of reasons, including:

Depth of Market (DOM): From Basics to Evolution | Bookmap (3)

  1. To Understand Market Liquidity: The Depth of Market (DOM) allows
    traders to gain valuable insights into market liquidity in the
    following ways:

    1. Bid and Ask Quantities:

      1. It allows traders to examine the quantities of bids and asks
        at various price levels.

      2. If there are many buyers (high bid quantities) and sellers
        (high ask quantities) at a particular price level, it
        indicates a liquid market.

      3. Conversely, low quantities may suggest lower liquidity.

    2. Spread Analysis:

      1. The difference between the highest bid and the lowest ask
        (the spread) is a measure of liquidity.

      2. Narrow spreads typically indicate a liquid market, while
        wide spreads suggest lower liquidity.

  2. Provides Insights into Market Direction: The DOM also helps traders
    gain insights into the current market direction by letting them to:

    1. Visualize Market Orders:

      1. The order flow in the DOM reflects the real-time actions of
        market participants.

      2. An increase in buy orders (bids) often indicates a bullish

      3. Conversely, a surge in sell orders (asks) suggests a bearish

    2. Understand Aggressiveness of Orders:

      1. The sequence and aggressiveness of orders in the DOM can
        provide clues about market direction.

      2. For example, a large market order suddenly appearing on the
        buy side may indicate strong buying interest and a potential
        upward move.

  3. Helps in Identifying Price Barriers and Points of Inflection: The
    DOM helps traders identify potential price barriers and points of
    inflection in the market via:

    1. Support and Resistance Levels:

      1. Most traders look at the DOM to identify significant support
        and resistance levels.

      2. A support level is where there is a concentration of buy
        orders, indicating a potential price floor.

      3. Conversely, a resistance level is where there is a cluster
        of sell orders, suggesting a potential price ceiling.

    2. Order Imbalance:

      1. When there is a significant imbalance between buy and sell
        orders at a particular price level, it can act as a point of

      2. For example, if there are far more buy orders than sell
        orders at a specific price, it could signal a potential
        price rally.

    3. Iceberg Orders:

      1. Some traders use
        hidden or iceberg orders
        , which are not fully displayed in the DOM.

      2. Recognizing the presence of such orders helps in identifying
        potential points of inflection.

Advantages of Visual DOM over Traditional Formats

The visual representation of the Depth of Market offers traders a more
intuitive and efficient way to analyze market data. It allows for the rapid
identification of anomalies and trends, enabling quick decision-making and
action. Let’s understand this further.

Intuitive Analysis

Visual representations are more intuitive and require less cognitive effort
to understand. Instead of deciphering rows of numbers and text, traders can
quickly grasp the market situation by looking at visual graphs, charts, and
order book ladders.

This helps traders to make informed decisions faster as they can instantly

  • Key price levels,

  • Trends, and

  • Imbalances in the order book.

Additionally, a visual DOM also provides a comprehensive overview of the
market. Using it, traders can see the current state of the order book and
its historical changes.

Spotting Anomalies and Detecting Trends

In fast-moving markets, visual DOMs help traders quickly spot discrepancies

  • Bid and ask quantities or

  • Sudden changes in order flow.

This can act as a signal for potential market-moving events, such as large
trades or shifts in sentiment. When anomalies or trends are detected
visually, traders can respond promptly.

For instance, if traders notice a sudden surge in buy orders, they may
choose to enter a long position to capitalize on the upward momentum.

Develop Tailored Trading Strategies

Visual DOM reveals current market conditions. This helps traders
create and adapt strategies
. For example, traders implement a:

  • Scalping strategy when they see tight bid-ask spreads or

  • Trend-following strategy when they detect a clear directional bias
    in the order book.

Thus, by utilizing the most up-to-date information, visual DOM equips
traders to respond to the current state of market. Using the latest
information, traders can develop tailored strategies that can be highly
profitable, especially in volatile or rapidly changing markets.


Depth of Market (DOM) provides critical insights into market dynamics,
liquidity, and price movements. This valuable understanding allows traders
to make informed decisions and execute well-thought-out strategies.

The visual representation of DOM offers a range of advantages over
traditional text-based formats. It promotes intuitive analysis by providing
a quick and comprehensive view of the market, reducing the cognitive effort
required to interpret data, and facilitating faster decision-making.

Additionally, it aids traders in identifying anomalies and trends with
greater precision. Thus, traders are encouraged to use visual DOM while they
are trading to stay ahead of the competition and ultimately achieve success
in the dynamic world of digital trading.

Are you ready to transform your trading approach with unparalleled DOM
visualization? Dive deeper with Bookmap’s
DOM Pro add-on
and elevate your market insights.

Depth of Market (DOM): From Basics to Evolution | Bookmap (2024)


What is Dom market depth? ›

DOM (Depth Of Market) shows all limit orders placed but not yet executed for an instrument. The greater the number of orders in a certain price level, the greater the interest in that level.

Is level 2 trading worth it? ›

Why Use Level II? Level II quotes can provide a lot of information about a given stock: You can learn what kind of buying is taking place (retail or institutional) by looking at the type of market participants that are involved. Large institutions don't use the same market makers as retail traders.

How do you calculate market depth? ›

Market depth considers the overall level and breadth of open orders and is calculated from the number of buy and sell orders at various price levels on each side of the mid price.

What is depth of market Dom indicator? ›

Summary. Depth of Market (DOM) is organized in a list of prices and shows the numbers of pending buy and sell orders corresponding to each price level. Traders can forecast whether the price will move up or down through the trend of DOM, and thus, determine the timing to buy or sell.

What is the depth of DOM? ›

Depth of market (DOM) is a measure of the supply and demand for liquid, tradeable assets. It is based on the number of open buy and sell orders for a given asset such as a stock or futures contract. The greater the quantity of those orders, the deeper or more liquid, the market is considered to be.

What does Depth of Market tell you? ›

Market Depth allows you to gain further insight into information such as: To determine whether a particular share has more buyers or sellers in the market. View the difference between the best bid and best offer (also known as the 'spread').

Where do you find market depth? ›

Market depth can be evaluated by looking at the order book of a security, which consists of a list of pending orders to buy or sell at various price levels. On any given day, there may be an imbalance of orders large enough to create high volatility, even for stocks with the highest daily volumes.

What is the formula for depth? ›

Since the speed of sound in water is known, the simple equation "d/2 = vt" is used to find the depth "d". The letter "v" represents the speed of sound in water and the letter "t" is the total time for the sound to leave and return to the vessel.

What does 2% market depth mean? ›

In simpler terms, it shows the volume of buy and sell orders within a 2% range of the current market price. This depth gives traders valuable insights into the market's liquidity and the current sentiments of other traders.

How to see full market depth? ›

Market depth gives a gist of real time market activity in a particular security. It gives an idea of the levels at which the orders are being placed. To view the market depth for a particular scrip, search for the scrip to go to the scrip info page.

Does TradingView have Depth of Market? ›

Click on the Trade button in the trading panel. In the order panel, select the DOM tab - Order book. The DOM will open for the asset selected on the chart. If the data is not displayed, the symbol on the chart is not traded through the selected broker.

What is the indicator based on market depth? ›

The Depth of Market indicator provides information about real-time buy (demand) and sell (supply) orders. By default, the ATAS platform adds the Depth of Market indicator to every newly opened chart. It looks like a two-color histogram on the right-hand side of the chart.

What is good market depth? ›

Market depth refers to a market's ability to absorb relatively large market orders without significantly impacting the price of the security. Market depth considers the overall level and breadth of open orders, bids, and offers, and usually refers to trading within an individual security.

What is crypto market depth? ›

In cryptocurrency trading, market depth describes the market's capacity to withstand significant orders without appreciably impacting price. It is a liquidity metric that shows how many buy and sell orders there are for a given cryptocurrency at different price points.

What does it mean when a market is deep? ›

A stock has a deep market if it consistently achieves a high volume of trades. A stock with a deep market is highly liquid, meaning there is a balance between buyers and sellers that keeps the price stable. For traders, a deep market allows large trades to be made without immediately affecting the price of the stock.


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