SM-01 Market Depth Feature

Market Depth Feature

 

Many brokers trap retail traders/ investors by giving fascinating tools for analysis that are not accurate. And can be misleading while analyzing the stocks.

One such a tool is the “Market depth” feature. Nowadays some brokers also provide the level 3 data of market depth (up to 20 depth).

 

Examples of Market Depth feature.

While reading market depth one should be cautious as it can be misleading. When we place the order at the time brokers terminal ask us disclosed quantity many of us don’t pay heed to that field. (Highlighted in Red color)

What is Disclosed Quantity?

Disclosed quantity allows you to disclose only a part of the actual quantity you want to buy/sell. Once the disclosed quantity is specified by the client, the order is sent to the exchange and only the disclosed quantity will be shown on the market screen.

 

Rules for filling disclosed Qty. (Source Zerodha Article)

Different exchanges have different disclosed quantities:

NSE/BSE (Equity) = Disclosed quantity cannot be less than 10% of your order.      

NSE (CDS) = Disclosed quantity cannot be less than 10% of your order.      

NSE/BSE (F&O) = There is no disclosed quantity option. You can place multiple orders if you want to buy/sell a huge quantity without shaking up the market.

MCX (Commodity) = Disclosed quantity cannot be less than 25% of your order.

Conclusion

It is possible that one may place a sell/ buy order of 100 shares and discloses only 10 shares. Also if someone places a market order it will not be reflected on market depth, as Market depth only show limit orders.

 So clearly for trend identification it is useless. Some people often analyze based on total sell quantity and total buy quantity (at the bottom of level 2/3 data), which is inaccurate.

The only use I find is that it is not possible that the quantity shown under the market depth is higher than the actual trade quantity i.e. one can't place a buy/ sell order of 100 shares and put 150 in the disclosed quantity section.

In other words, use this information only for liquidity purpose.

Practical insight into Market depth.

I did an experiment on Illiquid stock named “Rekvina laboratories”.

Image 1 - Order depth on the edelweiss trader app before my order.

Image 2- Order from Zerodha. (Placed order for 10 shares and disclosed as 4).

Image 3 – Order depth after placing the order. (It is showing 4 instead of 10 shares).