Market Mechanism

Market Depth:

Market depth refers to the market’s ability to generate orders without having an affect on the price of a security. The more liquid the market is, the more depth it has. In other words, when a market is highly liquid, the purchase of a security is unlikely to impact price movements.

Factors that impact market depth:

1. Tick

2. Size

3. Prices movement

4. Restriction

5. Trading

6. Restriction

7. Allowable

8. Leverage

9. Market Transparency

    

In addition, market psychology also has the ability effect prices and volatility.

Markets are generally the product of speculations, forecasts and fears. Even gossip has the potential to cause panic among investors, and have tremendous influence on the price of markets and stocks. However, the most important influential market factor is trader attitude towards risk.

Usually, rational investors rarely take the spread of rumors seriously. Instead, they are more concentrated on risk. The mystery begins when the amount of average investors in a market increases, which ultimately affects overall movement. This obligates rational investors to take different actions to offset the risk associated with market price fluctuations.