Market Depth screen – How to understand it

Market Depth for BHP

BullCharts software is a charting and technical analysis system. Even though it is not a trading platform with buy and sell features (that is, you can’t trade shares from within BullCharts), it does include a market depth screen, much like your online broker’s market depth view.

The screenshot at right (click on it for a larger version) is an example of the market depth for BHP taken during the trading day. Note that the BullCharts end-of-day data subscription will not enable you to see market depth in BullCharts.

Study the top portion of the market depth image at right and note that when this screenshot was taken, the last BHP trade took place on Thursday 24 June 2021 at 3:36pm. At that stage in the day’s trading session the last trade took place at 47.605, and the session’s Open, High and Low prices for the session to date are shown there, as well as the number of Trades and the Volume in the session up to the minute.

Market Depth – What is it?

For anyone who is not familiar with market depth, the following brief overview explains it. Most of the market depth window pane is a table of information with a list of potential Buyers down the left hand side and their “Bid” price, while the right hand side is a list of potential Sellers and their “Asking” price. Note that some people refer to the “buy” price as the “bid” price, and the “sell” price as the “ask” price (aka “offer” price). Now focus on the top portion of this screenshot, and the first few lines in the table, as shown in the image below.

Market depth – the buyers and sellers

In this image, firstly notice that the last traded price shown in the top left corner was $47.605 – that’s right, $47.60 plus a half a cent. That is, 47 dollars and 60 and a half cents (this can be done for some stocks under some circumstances). Now note that the first line in the table shows 8 potential Buyers bidding to buy a total Quantity of 776 shares at $47.60, while there are 17 potential Sellers offering to sell a total of 921 shares at $47.61.

Now if any Buyer steps up and bids a price that matches or exceeds the sellers asking price, then a trade will take place. That is, if a Buyer bids $47.61 (or any higher value), then a trade will potentially take place (if there are enough shares being offered). If all 8 Buyers can buy all 776 shares, then those entries in that left hand half of the table will disappear and the next row in the Buyers column will move up to be at the of the queue. Conversely, if the Sellers are very keen they could amend their asking price downward so as to match the bid price of the Buyers, and then a trade will take place.

This is essentially an auction process. If there is no match between the Buyers and Sellers, then no trade will happen and this market depth table will not change – and this does happen for hundreds of stocks on the ASX. If the trading is vigorous, and there are matching Bid and Ask prices then this table will change to reflect the changed information. A 12-second video of the market depth in action for a large blue chip and very liquid stock is shown at the bottom of this KnowledgeBase entry.

The Market Depth ribbon

In the above screenshots, notice the thin coloured ribbon that runs across the image just below the last traded price details. It is coloured yellow near the middle, then green towards the left and right, then light blue then red at the far left and right sides. This is simply a visual representation of the top four price levels of the market depth, based on the quantity of Bids and Asks. It can assist in a quick understanding of the trading action between the Buyers and Sellers. Watch it change in the 12-second movie below.

This ribbon is well demonstrated in the next screenshot below (of a very thinly traded stock), noting the key points below the image.

The Market Depth Ribbon

Remember that the market depth ribbon indicates the top four “levels” of the market depth. Now note the following key points in the above screenshot of MFB:

  • In the list of Buyers shown on the left hand side there is only one potential Buyer, bidding to buy 2,000 shares. Therefore the ribbon is all yellow. There are no other price levels on the Buy side.
  • In the list of Sellers on the right hand side there are exactly four potential Sellers, so the ribbon is using all four colours – yellow, then green, then light blue then red.
  • Notice the length of the yellow and green portions of the ribbon are fairly short compared to the longer light blue and the even longer red portion. This is because of the number of shares being offered for sale at each of these four price levels. There are 350 shares at $1.355, and another 350 at $1.36, so the yellow and green portions are the same length.
  • Still on the Sell side there are 5,555 shares offered for sale at $1.66. Now this quantity of 5,555 is more than half of the total number offered (8,845), so the red portion of the bar is more than half of the total length available for the Sellers.

Market Depth – Column totals

At the bottom of the market depth table are column totals (for the four outer columns, and not the two centre columns)  and the “Balance of Power” indicator, as shown in the screenshot below (indicated inside the red oval). Note the following:

  • The four column totals are for “#B” and “Qty(B)” to the left and “Qty(A)” and “#S” to the right.
  • The “#B” and the “#S” columns have the total number of buyers (to the left) and sellers respectively. Note there are two lines here where the first line shows the total numbers for the entries displayed on the screen while the second line shows the total number including bids and asks that are not displayed and which would appear further down the list. In this example there are 95 buyers shown in the displayed table, but a grand total of 1,174 buyers.
  • The Balance of Power is explained in the next paragraph below.
  • The last line under the table, “Last Updated:…”,  indicates the last date and time that this market depth screen was updated.
Market Depth – Column totals and Balance of Power

Market Depth – Balance of Power

At the bottom of the market depth table along with the column totals is the “Balance of Power” indicator as shown in the screenshot above. In this example the Balance of Power values are shown in red, but in some circumstances they can be green. Note the following:

  • The “Balance of Power” values are a simple ratio of the number of Buyers to the number of Sellers.
  • In this screenshot example, simply divide the number of Sellers by the number of Buyers.
    That is: 131 / 95 = 1.38
    So the ratio of buyers to sellers is one buyer for every 1.38 sellers.
  • When performing this calculation, use the larger of these two values as the numerator (Sellers) and the smaller as the denominator (95) so as to produce a result that is greater than one.
  • In this example, the number of Sellers exceeds the number of Buyers, so the resulting Balance of Power is shown coloured red.
  • If the number of Buyers was greater than the number of Sellers, then flip the two values over so as to produce a result greater than one, and the resulting Balance of Power will be coloured green as shown in the example below for GLE, and where the value for Balance of Power is easily calculated.
Market Depth for GLE

Market Depth in action – A 12-second movie

You need to watch this 12-second movie very intently because at a glance it might appear not to change. Some of the things to watch out for are listed below.

Market depth observations in this movie:

  • Keep an eye on the “Last” traded price which is 47.465 at the start, and also the values in the columns headed “#B” (number of buyers) and “#S (number of sellers). At the end of this 12 second movie the Last traded price was $47.460.
  • Also watch the two “Qty” columns as the trades take place. These numbers change with each trade.
  • The number of “Trds” for the session was 22,348 at the start of this movie (an average of 62 share parcels traded every second during the session), and by the end of this 12-second movie the Trds value had increased to 22,367. (A trade is the exchange of a quantity of shares between a Seller and Buyer).
  • The “Vol” (volume) for the session was 3,006,564 at the start of this movie (about 8,350 shares traded every second), and at the end of this 12-second movie the Vol had increased to 3,009,598.

Note that BHP is a heavily traded stock, and that there are hundreds of stocks on the ASX that do not trade as often as BHP does throughout the trading day. This is related to the liquidity of the stock.

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