Posted in Finance, Accounting and Economics Terms, Total Reads: 554
This refers to the ability of any security or any financial product to absorb the various buy and sell orders in such a way that the price of the security does not change substantially in either direction. The phenomena called depth of any security is mainly dependent on the liquidity of the market. A deep in the money market may require very high number of sell or buy orders before any actual price change can be seen in either direction. The high orders is incentivized by asking for low bid ask spreads with increasing market competition to attract investment.
A market having depth in the securities and financial products is considered to be good because it means that a single market maker cannot move the price of the stock substantially in either direction single handedly. Hence, more and more investors would want to invest in that market. Also, this is an important criteria for many big investors such as institutional investors because they need to execute the large orders to book profits without changing the price of the security in either direction.
Any prominent market attracting a long list of investors is considered to be having in depth securities. As the greater the number of the investors the greater is the investment on either sides making the security high in depth.