With depth of market data, clients get access to volume and liquidity information and can use it to their advantage. They have an insight into the sentiment of the market with the quantities of volume available at different prices which can often indicate the potential market direction in the future.
Depth of market provides the ability to see the order of flow through the perspective of the brokerage.
In essence, a larger quantity of buy orders around a certain price level compared to the sell orders can mean that there is stronger buying pressure in that market which is bullish for the underlying asset or currency pair.
Conversely, a large number of sell orders higher than the current market price can mean that the market will first rally up to that level before it collapses when it hits the specific price level where the large volume of orders rests.
Classical technical trading patterns can be executed with a higher degree of confidence with the help of the depth of market tool because a support area confirmed by a high number of buy orders is a much stronger signal that it will hold than a support area not helped by a lot of buyers.
A must-have tool for scalpers and short term traders
Depth of market is used by Forex traders in order to help them determine the best levels to enter or exit a position.
A great tool for trading larger volume
The depth of Market data is very valuable for traders with larger capital who are trading larger quantities of volume on each trade. The ability to see at what price a large number of orders is concentrated allows them to execute their trades in the most cost-efficient way possible without getting a lot requotes and slippage.
Finally, having this kind of information available is certainly an advantage for any Forex trader in both executing their trades and judging future market direction.
However, not all Forex brokers offer the depth of market tool. Normally, it is ECN brokers that can provide order flow information alongside with several other advantages, hence it’s recommended for traders to always choose an ECN Forex broker over a market maker.
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