Depth of Market (DOM)

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Depth of Market (DOM)

What is Depth of Market (DOM)?

Depth of Market (DOM), also called the order book, is a real‑time listing of open buy (bid) and sell (ask) orders for a tradable asset at multiple price levels. It shows how much interest exists on each side of the market, helping traders assess liquidity and the likely short‑term price impact of incoming orders.

How DOM appears and works

  • Display: DOM typically appears as two columns (bids and asks) with price levels and the quantity available at each level. Many brokers provide a DOM view.
  • Top of book vs depth: The best bid and ask are the top of the book; deeper levels show additional queued orders that reveal broader supply and demand.
  • Matching engine: A trading venue’s matching engine pairs compatible buy and sell orders, executing trades when prices meet.
  • Bid‑ask spread: The difference between the best bid and best ask, visible in the DOM, affects execution costs and short‑term trading decisions.

How traders use DOM

  • Gauge liquidity: Large quantities clustered at several price levels indicate high liquidity and the ability to place big orders with less price impact.
  • Anticipate short‑term moves: Shifts in order sizes or rapidly changing levels can signal imminent price movement.
  • Plan execution: Traders use DOM to time entries and exits, place limit orders at specific levels, or scale into/out of positions to minimize slippage.
  • Monitor events: During IPOs, news, or earnings, DOM can reveal how demand and supply are forming in real time.

Illustrative example

Suppose Stock X trades at $1.00. The DOM shows:
* Asks: 250 shares at $1.05, 250 at $1.08, 125 at $1.10
* Bids: 50 at $0.98, 40 at $0.95, 10 at $0.93

There is more selling interest stacked above the current price than buying interest below it; a trader might interpret this as downward pressure until those ask orders are absorbed.

Limitations and risks

  • Incomplete view: DOM shows orders visible on the displayed venue(s). Hidden orders, dark pools, and other exchanges may alter the real supply/demand picture.
  • Spoofing and manipulation: Some participants may place and cancel large orders to mislead others; regulatory and venue protections vary.
  • Latency and execution risk: DOM is time‑sensitive—delays between viewing and executing can change outcomes, especially in fast markets.
  • Thin markets: Low depth leads to large price moves from relatively small orders (high slippage).

Practical tips

  • Use DOM alongside price action and volume—DOM is one input, not a standalone signal.
  • Prefer DOM analysis in liquid, actively traded instruments where visible depth is more representative.
  • Consider order types (limit vs market) and execution strategy to control slippage when interacting with deep or thin markets.
  • Be cautious around major news, openings, and IPOs when DOM can change rapidly.

Key takeaways

  • DOM reveals real‑time supply and demand by showing order sizes at multiple price levels.
  • It helps traders assess liquidity, anticipate short‑term price moves, and plan executions.
  • DOM is most reliable in liquid markets; it can be misleading when orders are hidden, canceled, or manipulated.
  • Combine DOM with other market data and a clear execution plan to reduce risk and improve trade outcomes.