Order Book, Level I and II Market Data

The most reliable tool that traders use to make trading decisions is Level I and Level II market data.

Market data comes directly from the exchange – for example, the NYSE and the CME provide Level I and II data for stocks and futures contracts. Traders receive market data via their broker. Level I and Level II are available for futures and equities.

Access to Level II data is more expensive than Level I for stocks and futures. Some brokers may provide all data streams free of charge, but usually charge higher fees as compensation.

This market data includes information on current prices and recently completed trades. Level II data provides more information than Level I. Depending on the broker, Level I and Level II may have different costs associated with them.

Level I is the basic market data needed to trade and most chart based trading systems have it. If you trade using a Price Action or indicator based strategy.
The data Level I includes the following information:

• Bid Price – the highest reported price at which someone is willing to buy an asset.
• Bid Size – the number of shares, forex lots or contracts that people are trying to buy at the bid price.
• Ask Price – The lowest reported price at which someone is willing to sell an asset. Also called the Ask Price.
• Ask Size – The number of shares, forex lots or contracts sold at the Ask Price.
• Last Price – the price at which the last transaction took place.
• Last Size – number of shares, forex lots or contracts involved in the last transaction.

Level II provides more information than Level I data. Basically, it does not simply show the highest bid and offer, but also shows bids and offers for other prices.

• Highest Bid Prices – highest bid prices
  
• Bid Sizes – the number of shares or contracts that people try to buy at each bid price.
• Lowest Ask Prices – the lowest bid prices from five to fifteen of the lowest prices at which traders are willing to sell an asset and have placed an order to do so.
• Ask Size – the number of shares or contracts available at each ask price.

Level II market data provides the additional information needed to trade based on changes that occur in bids and offers.
Traders analyse which side is more active or more liquid to predict the short-term direction of the market price.

If the majority of transactions take place at the bid price, this means that the price may fall in the short term, whereas if the majority of transactions take place at the offer price, the price may rise.

Level II or Order Book – shows all orders that have been placed and are awaiting execution. An order is executed when someone else wants to trade with someone else at the same price.
Level II is also known as Depth of Market (DOM) because it shows the number of contracts available for each of the buy and sell prices.

author:: Mikhail Lemah 2023