Market depth

To start off this day's post, many people think that we can buy shares by just... buying shares. They cannot explain how it works unless one actually does buy shares oneself. Buying shares are like standing in a queue, depending on your price, you may cut queues. If you're the buyer, the higher your price, the more you are able to cut queue and move to the front. If you're a seller, the lower your price, the more you are able to cut queue and move to the front.

Market depth is really just a life of buyers and sellers on either side of the screen for a particular stock. Hence, when one buys a share, one should not look at the share price, which actually tells you the value of the share last traded on the open market, but one should look first and foremost at market depth. Usually the share price last traded, and the recently new formed market line-up will be pretty different in terms of a few cents.

Market depth is accesible through your broker's website. If you're a full-time online buyer of shares, you can go to your broker's website and under your account, look for the heading Market depth. I was fortunate to have a friend explain to me the term 'market depth' before I started trading shares. If you're following a phone broker, there is no need to know Market depth because your broker, assuming he is acting with due care on your behalf, would buy shares at the lowest price possible for that particular share.

So, when you are all excited about buying shares, and have the money ready in your broker's account, first don't forget to check market depth. You've done well preparing until the last stage, so don't screw up the last stage by buying shares based on last trade, which might be a few cents above market price. It matters when you're buying huge volumes, such as something like a million shares. Few cents translate into tens of thousands of dollars. Of course assuming if you're buying such a huge number of shares for the first time, you are already aware of this thing called Market depth! Sometimes we got to learn it the hard way...