Traders put various types of orders for making profitable trades. For placing different types of orders, a trader must consider and analyze many market data, as the market discounts everything every minute. Before jumping into the market, traders’ data is known as level 1 and level 2 market data. This article is your answer if you are thinking about level 1 and level 2 market data.
Market data levels represent information about current prices and recently completed trades. Market data level 1 displays the best bid-offer-volume quotes in real-time—market data level 2 displays as same as level 1 plus the market depth and order book. Market-level 3 represents the highest level of quotes provided by a trading service, giving it the ability to enter quotes, execute orders, and send information (unites market data level 1 and market data level 2).
In various types of market data, there is information regarding current market rates and recent trades. Compared to the level I data, Level II data gives more information. Traders can subscribe to their preferred data set through their brokers. The cost of both the data sets are different and depends on the broker. Before choosing a data Level, you must be aware of all the different data provided by that Level on your feed, so you pay only for what you can use.
What is Level 1 Market Data?
Level 1 market data displays the best bid-offer-volume quotes in real-time and gives information about bid price, bid size, ask price, size, last price, and last size.
See market data level 1 example video:
When you get basic information related to the market, it is considered as Level I market data. It helps traders in taking trades based on charts, price actions, and indicators. The following terms are associated with the Level I market data.
Bid Price
The highest rate at which a trader is likely to purchase the financial asset.
Bid Size:
Depending on the financial market, the total number of shares, currency pairs, or contracts, traders are buying at the bid price.
Ask Price
The lowest rate at which a trader is likely to sell a financial instrument. It can also be said the offer price.
Ask Size
Depending on the financial market, the total number of shares, currency pairs, or contracts, traders are selling at the asking price.
Last Price
The last rate of the last transaction is executed in the market.
Last Size
Depending on the financial market, the total number of shares, currency pairs, or contracts sold in the last transaction.
Traders or scalpers trading on changes occurring because of other traders’ bidding and asking rates prefer using Level II data to provide deeper and multiple information on the market.
Understanding level 2 market data
What is Level 2 Market Data?
Level 2 market data displays the best bid-offer-volume quotes in real-time, market depth as the magnitude of buy and sell orders at different prices, and order book where most orders are concentrated among market makers.
As Level II gives data on the higher bids and asks prices and a lot more, it is more useful than Level I market data. The following information is related to the Level II order book.
Highest Bid Prices
It represents the top 5 to 15 rates at which traders place buying orders for an asset. As a result, it would show you all the current bids that are below the stated rate. For active stocks, you can get bids for minor differences like $0.01.
When it comes to an active future contract, you can see a bid for every bid below the current bid. If the gap between the current/existing bid and the upcoming/next bid is more, it suggests a considerable bid/ask spread for that particular stock or futures contract.
Bid Size
Depending on the financial market, the total number of shares, currency pairs, or contracts traders are buying at the given bid price.
Lowest Ask Price
It represents the top 5 to 15 rates at which traders place selling orders for an asset. For active stocks, you can get asking prices for minor differences, like $0.01. When it comes to an active future contract, you can see the ask price for every tick price above the current ask price.
Ask Size
Depending on the financial market, the total number of shares, currency pairs, or contracts available at the given ask price.
In addition to that, Level II market data also provides information for trading in between the bid and ask price changes. Many traders also look after the stock volumes on how many shares are being bought and sold. This also helps in concluding the market trends, whether it’s a bullish market or a bearish one.
Market 3 data level
Market 3 data level provides all the information and services of level 1 and level 2 quotes plus provides the ability to enter or change quotes, execute orders, and send out confirmations of trades. Level 3 service is restricted to the National Association of Securities Dealers (NASD) member firms.
More on Market Data Levels
Traders can also combine this perspective with the recent transactions, like if the transactions are executed at the bid price, there are chances of prices to go down for the short term. If the transactions are executed at the ask price, there are chances of prices going up in the short term. As per the knowledge and preferences, a trader can mix and match various trading strategies.
So that you know, Level II data is also known as a Level II order book as it represents all the orders that are executed and are in the waiting line in the market. It is also known as market depth as it shows the volumes of all the transactions. However, remember that a transaction is executed only when both parties agree to trade on a specific price.
The Bottom Line
If you wonder where the market data comes from, the answer is financial exchanges. NYSE (New York Stock Exchange) is known for providing Level I and Level II market data for stocks listed on its platform. In addition to this, traders can also gain such important data sets from their brokers. It is easier to get both levels of data sets for stocks and futures, though, for forex, only a few brokers offer Level II market data.
There is no doubt that Level II data costs more than Level I data. Though some brokers provide these data sets for free, you have to pay them a little higher commission. At the same time, forex brokers do not charge for Level II data.
As a trader, you need to know what is information affects the market and how you can take advantage of that by educating yourself. Knowledge is the key here to open the locks of future gains. By learning and implementing it, you would soon become a pro from a novice.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
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