Understanding the Depth of Market (DOM)

The Depth of Market, commonly referred to as the "DOM" or "the ladder," is the primary tool used by professional floor traders and electronic day traders to view current buy and sell interest.

The Bid vs. The Ask

Every transaction in the financial markets requires a buyer and a seller. The DOM breaks these down into two categories:

• The Bid (Left Side): This represents the buyers. These are passive limit orders waiting to buy the instrument at a specific price.
• The Ask (Right Side): This represents the sellers. These are passive limit orders waiting to sell the instrument at a specific price.

Passive vs. Aggressive Orders

Market movement is governed by the interaction between resting (passive) orders and immediate (aggressive) orders. When an aggressive buyer enters a "Market Buy," they buy from the lowest available "Ask." If their order is large enough to consume all the liquidity at that price, the price "ticks up."

Why is the DOM better than a chart?

While a candlestick chart tells you what happened in the past, the DOM tells you what is happening right now. You can see big blocks of orders being placed or pulled, giving you a sense of where the "heavy hitters" are looking to engage.