Educational Articles

MARKET DEPTH

Market depth shows the supply and demand for stock at various prices and can be a key indicator of market sentiment.

The Direct Broking depth screen, accessed via Quick Quote, shows the top 15 levels of buyers and sellers, together with the last 15 trades.

PLEASE NOTE: depth is only available to Direct Broking clients who have placed a trade via the Direct Broking website in the last 90 days.

BID AND ASK

"Bids" refers to the quantity of shares wanted to be purchased for a maximum price. The Bid price is also referred to as the "Buy" price.

"Asks" refers to the quantity of shares available to be sold at a minimum price. The Ask price is also referred to as the "Sell" or "Offer" price.

A trade occurs when the Bid price is raised to meet the Ask price or, alternatively, when the Ask price is lowered to meet the Bid price.

During market trading hours, Bid prices are lower than Ask prices - thus creating a "price spread" - however the Bid price may be higher than the Ask price during pre-open and pre-close hours.

PRE-OPEN AND PRE-CLOSE

The time periods either side of an open market are referred to as "pre-open" and "pre-close".

During pre-open and pre-close, Bid and Ask prices can be entered into the market but trades will not occur until the market actually opens for trading.

Refer to the timetable below:

Pre-open period

During the pre-open period, investors may examine the quantities and prices on either side of the market to predict the potential trading sentiment for the day ahead.

In a situation where the Bid price exceeds the Ask price during pre-open, the opening price is found by a rule-based algorithm used by the relevant stock exchange.

When the market opens, the algorithm takes into consideration the volume and prices on each side of the market and uses four sequentially-applied steps to determine the open price. If a result cannot be found when the first rule is applied, the second rule will also be applied and so on until a price is created.

If you wish to view more information about the algorithm, an explanation can be found on the Australian Stock Exchange website.

Pre-close period

The same logic applies during the pre-close period, where investors have a 15 minute window to enter an order into the market for it to be potentially "matched off" at the specified close time, according to the price and volume on the Bid and Ask sides of the market. If the order is not matched, based on Bid/Ask price and volume, the order remains in the market queue until the following trading day when it can then be altered, removed completely or left unchanged.

OPEN MARKET HOURS

When the market is open, investors are able to actively purchase and sell their shares by specifying a maximum Bid price to pay no more than or a minimum Ask price to sell no less than.

PLEASE NOTE: When submitting a "market order" during open market hours, you are requesting that the buy/sell order be placed at the best available Bid/Ask price at the time the order is entered into the market. An order to buy at market during open market hours will only fill as far as the lowest Ask price before stopping and requiring an amendment for full completion of the order at the next Ask price, and vice versa for an order to sell at market.

Liquidity

Please note that the depth screen for actively traded securities (referred to as "liquid" securities) may change rapidly and affect where your order appears in the queue.

Conversely, securities that are not frequently traded (referred to as "illiquid" securities) may show a wide price spread between Bid and Ask and may require careful monitoring once your order has been entered into the queue, due to effect of potentially sporadic trading activity.

Volume ahead (red indicators)

By holding your mouse pointer over the red indicators in the depth screen you can view the following information:

- Total volume ahead
- Number of individual Buyers/Sellers ahead
- Dollar value of the volume ahead
- Average price based on volume and price ahead

Condition Codes

The Condition Codes column in the Recent Trades table shows a variety of two-letter codes that denote atypical trades.

The following codes detail the various conditions for NZX (New Zealand) trades:

IN - International
LT - Late Reported
OS - Overseas
OL - Market Trade (too small for price setting)
PF - Portfolio Marriage
SP - Off-Market trade
SS - Short Sell
XX - Extra-ordinary

Click here to see more Condition Code examples in the Glossary

Please feel free to contact Direct Broking if you would like assistance with the market depth screen or the other trading functions on our website.

> 0800 805 777
> help@directbroking.co.nz