What makes a stock move? It's one thing to track a certain stock's pricing throughout the day, but it's a completely different experience to peer beneath the ticker itself and glimpse the raw, underpinning factors at play that influence market movements. Much like the Earth's tectonic plates, the movement you see on the surface of markets is only a glimpse of the activity churning underneath.
Getting this comprehensive view of market data isn't easy, but it is essential for traders and firms who want to move past being reactive and become more proactive in spotting themes, patterns, and distributions to capitalize on.
What is depth of book and why is it important?
In the most basic terms, depth of book refers to the robustness of an order book, itself a record of buy and sell orders that are waiting to be placed. Depth of book is often displayed as a ladder, with each rung being a price and a corresponding order—buy on the left and sell on the right. This visualization helps traders ascertain liquidity levels for specific equities or investment products. The greater the quantity, the more robust the order book.
Depth of book allows traders to view where orders are bunched or placed in real time, and how those bids and asks affect price. Seeing how order activity organically generates and organizes itself can help traders gain a better sense of future price movements.
Getting ahead with depth of book
Watching order volume and value in real time presents traders with an opportunity to become more than reactionary. For instance, in a balanced market for a certain security, buys and sells are generally 50/50 and uniformly arranged. However, seeing either asks or bids gaining an advantage may indicate to a watchful eye that the market is becoming unordered. Supply and demand is at work.
Visualizing support and resistance with depth of book can also allow users to time their trades according to their strategy. Clumps of orders that represent low and high price barriers for specific stocks can help provide points of reference for traders interested in taking short or long positions, for instance.
Nasdaq's depth of book unparalleled in market
For all the value that can be found in monitoring the order book, traders don't always have the level of insight they need to maximize its utility. Many market data platforms can hamstring market interpretation by only displaying top-of-book quotes. While that can be useful in its own way, harnessing the magmatic engine of market activity that is depth of book requires a data solution with the means to leverage that level of insight and support.
Nasdaq TotalView users gain access to an order book that surpasses even Level 2. Being the first and largest-by-volume exchange to offer depth across all Nasdaq-, NYSE- and regionally listed securities, Nasdaq's TotalView offers:
- Complete Depth-of-Book — Encompasses all displayed orders for Nasdaq, NYSE and regional securities with three times the liquidity within 0.05% of top-of-book as compared to alternative products, such as Level 2.
- Largest Single Liquidity Pool in the U.S. — Follows pockets of liquidity over time to understand how orders are distributed throughout the market, empowering users to identify and pursue new and unique trading opportunities by understanding not just where the market is but where it is going.
- Follow the Auctions — Accesses Net Order Imbalance Indicator (NOII) data in real time prior to the official Open and Close, understanding the true Buy and Sell interest with constant updates to the share imbalance, indicative clearing prices and sentiment.
For a complete view of the markets, experience Nasdaq TotalView. Beyond Level 1, at 18x the liquidity of Level 2, Nasdaq offers the complete market book with all the information you need to bring your active trading to the next level.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.