Every stock has an order book — a live list of all unexecuted orders. Your broker shows a slice of it, usually the best five levels on each side. This is called market depth, and reading it is a genuinely useful skill.
Bid and ask
- Bid — the highest price someone is currently willing to buy at
- Ask (or offer) — the lowest price someone is currently willing to sell at
The ask is always higher than the bid. If they ever crossed, a trade would happen instantly and remove them.
The gap between them is the spread.
Best bid ₹249.80 · Best ask ₹250.00 → spread of 20 paise, about 0.08%.
That is a liquid stock. You can enter and exit at close to the quoted price.
Best bid ₹243.00 · Best ask ₹251.00 → spread of ₹8, about 3.2%.
That is an illiquid stock. Buy at the ask and sell instantly at the bid and you have lost 3.2% without the price moving at all.
Reading market depth
A typical five-level depth table:
| Bid qty | Bid price | Ask price | Ask qty |
|---|---|---|---|
| 1,200 | 249.80 | 250.00 | 800 |
| 3,400 | 249.75 | 250.05 | 2,100 |
| 900 | 249.70 | 250.10 | 5,600 |
| 2,800 | 249.65 | 250.15 | 1,400 |
| 6,100 | 249.60 | 250.20 | 3,300 |
Two things to take from this.
How far your order will walk. A market buy for 2,000 shares takes 800 at ₹250.00 and 1,200 at ₹250.05. Average about ₹250.03 — fine. A market buy for 20,000 shares runs past every level shown and into unknown territory. Check depth against your order size before using a market order.
Where the resting interest sits. Large quantities on the bid side at a particular price mean several participants are willing to buy there. It is weak evidence, not a guarantee.
Liquidity, in practical terms
A liquid stock has: a narrow spread, large quantities at each level, high daily traded volume, and many trades per minute.
Why it matters to you:
- You can exit. The genuine danger with illiquid stocks is not the fall, it is being unable to sell into one at all.
- Your cost is lower. The spread is a real, invisible transaction cost you pay on every round trip.
- Prices are more honest. Thin stocks are far easier to manipulate.
Tick size
Prices move in fixed increments called ticks. On NSE, the tick size for many cash-market equity securities is price-linked. Securities priced below ₹250 use a ₹0.01 tick and those at ₹250 or above use a ₹0.05 tick, with the applicable tick size reviewed monthly. Other instruments or series may use different price steps. You cannot place an order at ₹250.03 if the tick is ₹0.05; it must be ₹250.00 or ₹250.05.
An order rejected for an "invalid price" is usually a tick-size problem.
Volume and traded value
Volume is the number of shares traded. Traded value is volume × price, and is the more useful figure for comparing stocks — 10 lakh shares of a ₹15 stock is far less activity than 1 lakh shares of a ₹2,000 stock.
A sudden volume spike means something changed: news, results, a large investor moving, or index inclusion. It does not tell you direction, only that attention arrived.
A simple pre-trade checklist
Before buying something you have not traded before:
- What is the spread, in percentage terms?
- How much quantity is resting within one or two ticks of the price?
- What is the average daily traded value?
- Is my order size small relative to that?
If the spread is wide and your order is large relative to normal volume, use a limit order, split the order, and accept that exiting may take patience.
Key takeaways
- Bid is the best buy price, ask is the best sell price, and the gap is the spread.
- A wide spread is an immediate, invisible cost on every round trip.
- Market depth shows how far a large market order would walk through the book.
- Depth is a snapshot — resting orders can vanish instantly, so do not read direction from it.
- Traded value is a better liquidity measure than share count.
Check your understanding
0 of 3 answered