Depth of Market (DOM)
Categories: Trading, Investing, Index Funds
Well, first...what's a thin market? Thin happens when few stocks are trading. Bonds too, actually. Thin is illiquid. Thin is when there just aren’t a lot of buyers at the given price levels. Thin is when trading volumes are described by the CNBC commentators as “anemic.” Thin is when the headlines ask, “Where have all the buyers gone? Long time passing…”
Thin is, well…not Bob of Bob's Big Boy. Fat is high volumes. Lots of cash being put to work buying securities. Fat is big demand to buy a big supply of, um...supply. Fat, or liquid markets, are generally driven by cash being put to work...which came from investors who simply saved their pennies to then deploy them in the markets, taking on more risk by being exposed to more volatility and (generally speaking) high liquidity.
Lots of opinions then go to work assessing the upside and the downside of the market...such that the gumball estimate effect is in place. And if you didn’t go to third grade in the last decade, the gumball estimate game revolves around the idea that, if many opinions estimate the number of gumballs in this big fish tank, those numbers get averaged, and way more often than not, the average guess is, in fact, very close to the actual number of gumballs crushing down the guppies, and other goldfish.
The same holds true in the stock market, where the aggregation of many opinions usually makes for better decisions…and in the case where a market suddenly grows thin, it means that a lot of educated, well-heeled investors have been spooked by the notion of taking on risk in their portfolios.
So they de-risk, or simply keep the cash in their wallets, not wanting to put it to work until better signs come from on high...
Got all that? Now multiply it by -1, and you'll get Depth of Market.
Related or Semi-related Video
Finance: What is a thin market?13 Views
Finance allah shmoop what is thin market peahen happens when
few stocks are trading on bonds to actually thin is
illiquid thin is when there just aren't a lot of
buyers at the given price levels Thin is when trading
volumes are described by the kindly wise cnbc commentators as
being anemic Thin is when the headlines ask where have
all the stock buyers gone Long time passing bob dylan
i'll go ask your parents finn is it Well not
this guy Fat is high volumes lots of cash being
put to work Buying securities fat is big demand to
buy a big supply of supply Fat or liquid markets
are generally driven by cash being put to work which
either came from investors who simply saved their pennies to
then deploy them in the market's taking on more risk
by being exposed to more volatility and generally speaking hi
liquidity even in a world where the stock market is
flat is generally perceived as bullish or positive voting in
the future of stock market values Yeah so what does
all that mean Money being put to work is good
It adds liquidity It means people are hopeful optimistic lots
Of opinions Then goto work assessing the upside and downside
of the market such that the gumball estimate effect is
in place And if you didn't go to third grade
in the last decade the gumball estimate game revolves around
the idea that if many opinions estimate the number of
gumballs in this big fish tank those numbers get averaged
and way more often than not The average guesses in
fact very close to the actual number of gumballs crushing
down on the innocent guppies and other goldfish below The
same holds true in the stock market where the aggregation
of many opinions usually makes for better decisions or at
least more accurate estimates And in the case where a
market suddenly grows thin it means that a lot of
educated well heeled invest astors have been spooked by the
notion of taking on risk in their portfolios by taking
their safe cash and risking it in the market So
they d risk or simply then keep cash in their
wallets Not wanting to put it to work until better 00:02:15.065 --> [endTime] signs come from you know on high