How to read a PSX order book (market depth)
The price is only the last trade. The order book shows what is waiting behind it: the prices buyers and sellers are asking for, and how much they want at each one.
Short answer
An order book lists the orders waiting to trade in a stock. Bids are buyers' prices, highest first. Offers (or asks) are sellers' prices, lowest first. The gap between the best bid and the best offer is the spread, and the size at each price shows how many shares are waiting there.
The two sides of the book
Here is a made-up book for a stock last traded at Rs 100.05:
| Bid size | Bid | Offer | Offer size |
|---|---|---|---|
| 12,000 | 100.00 | 100.05 | 4,500 |
| 30,500 | 99.95 | 100.10 | 8,000 |
| 8,200 | 99.90 | 100.20 | 25,000 |
| 51,000 | 99.85 | 100.25 | 6,300 |
An illustration only. These are not real orders in any PSX stock.
Read it from the middle out. The top row holds the best prices on each side: someone will buy 12,000 shares at Rs 100.00, and someone will sell 4,500 at Rs 100.05. Each row further down is a worse price for the other side: lower bids, higher offers. A row is often called a level.
The bid-ask spread
The spread is the best offer minus the best bid: here Rs 100.05 minus Rs 100.00, or 5 paisa. A buyer who wants shares now pays the offer; a seller who wants out now takes the bid. A narrow spread usually means a stock trades often and easily. A wide one means each trade costs more to get done.
Size and depth
Size tells you how much a price can absorb. In the book above, a buyer who wants 10,000 shares straight away would take all 4,500 shares at Rs 100.05 and 5,500 of the 8,000 at Rs 100.10. A bigger order would reach further up the book. That is why the same order moves the price of a thinly traded stock much more than a busy one.
Looking down several levels, not just the top row, is reading the depth of the book. The 51,000 shares bid at Rs 99.85 and the 25,000 offered at Rs 100.20 are the kind of thing the top row alone would never show you.
Size can disappear
An order in the book is a wish, not a trade. Until it trades, it can be cancelled or changed at any moment. A large bid can vanish as the price comes down toward it, and a large offer can be pulled as buyers arrive. So size in the book is worth watching over time: does it stay, does it trade, or does it go?
Trades at the bid and at the offer
When a trade prints at the offer price, a buyer paid the seller's price. When it prints at the bid, a seller accepted the buyer's price. Many traders read a run of trades at the offer as buying pressure and a run at the bid as selling pressure. It is a description of what happened, not a forecast.
The book in the pre-open
Before each session, orders collect in a pre-open and nothing trades until they are matched. The book can look very different then from the one a few minutes after the open. Our guide to PSX timings explains the pre-open and its matching break.
What the book cannot tell you
- Why an order was placed.
- Whether an order will still be there in a minute.
- Where the price goes next.
The book shows the orders waiting at one moment. Read with the trades that actually happen, it shows where buyers and sellers stand.
Quick answers
What is market depth in the stock market?
The order book for a stock: the bids and offers waiting at each price, and the size at each one.
What is a good bid-ask spread?
There is no single number. A spread of one tick is as narrow as a stock can trade; wider spreads are common in shares that trade less often.
Why did the price jump past several levels?
Because one order was big enough to take all the size at the best price and the levels behind it, or because the orders there were cancelled before it arrived.