Market data gives important insights into the supply and demand for a stock. Sometimes, traders can rely on higher level data and other times, they need a more granular view.
As your trading becomes more sophisticated, so must your market data. While Top-of-Book data provides key information, Depth-of-Book data provides a more complete picture of the market.
This information allows investors to uncover valuable insights into the true supply and demand of a security at multiple price points.
What is Top-of-Book data?
Top-of-Book data, or Level I data, provides the basic information needed to make an investment decision by providing a high level overview of what is going on in the order book.
This includes the National Best Bid and Offer (NBBO), which shows the price and size of the highest bid and lowest ask across all regulated exchanges.
Top-of-Book data also includes last sale information, which includes the price and size of the most recent trade to execute in a stock.
What is Depth-of-Book data?
Depth-of -Book data, or Level II data, is every visible quote at every price level in the order book and the number of shares at each price level to showcase how robust an order book is for a particular stock. This comprehensive view of all trading activity gives insights into the true supply and demand for a stock.
Tip: Many active traders use Depth-of-Book data to understand liquidity and uncover valuable insights for their trading strategies.
What are the benefits of using Depth-of-Book data?
There are four key benefits to upgrading from Level 1 (Top-of-Book) to Level 2 (Depth-of-Book) data.
- Follow pockets of liquidity over time – Seeing orders at all price levels can help you to identify shifts in supply and demand, signalling potential market sentiment.
- Track price movements – Use order distribution patterns to pinpoint key support and resistance levels. These represent the price levels at which the direction of a stock tends to stop and reverse.
- Find new trading opportunities – Track where more orders are placed or where few exist so that you can recognise opportunities to buy or sell.
- Forecast market patterns – Identify potential trends and shifts before they fully materialise.
What are proprietary depth data feeds?
Proprietary depth data feeds, or Level III, are provided directly by exchanges. They offer faster, more granular information, which historically was primarily used by institutional investors.
Many retail investors in today’s markets are finding they require more granular information than ever before. Going beyond Level I data and understanding multiple price levels in the market can offer great insights into market behaviour and stock performance.
It can be used to observe patterns, understand liquidity and improve trade timing. Many retail trading platforms now offer depth-of-book data to their users to meet their evolving needs.
What is the difference between real-time and delayed data?
Real-time data reflects the current state of the markets whereas delayed data reflects a past state of the market, often 15 minutes. Delayed data can be used to track the performance of a stock or carry out back-testing style analysis, while real-time data is used by active investors to make immediate trading decisions.
Real-time data provides accurate and timely information to investors. It allows investors to react quickly to market volatility from news and events, which can make all the difference in today’s competitive markets.
Final Thoughts
Investors in modern markets require market data to navigate the markets. What data they need can depend on how active they are in the markets or what kind of trading strategies they employ.
Either way, understanding the levels of market data, and if you need it in real-time or delayed, can potentially make a difference in trading outcomes.
To learn more about equities market data, visit the eToro Academy.
Quiz
FAQs
- Why is Depth-of-Book data important for traders?
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Depth-of-Book data provides a fuller picture of supply and demand by showing every visible quote at each price level in the order book. This helps traders assess liquidity, anticipate price movement, and try to optimise trade timing, especially in fast-moving markets.
- What does the National Best Bid and Offer (NBBO) represent?
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The NBBO displays the best available (highest) bid price and best available (lowest) ask price for a stock across all US regulated exchanges. It is part of Top-of-Book data and helps investors to identify the most competitive prices available.
- Do retail traders need real-time data?
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Retail traders may benefit from real-time data, especially if they use active trading strategies or want to respond quickly to market news. Real-time data provides up-to-the-second updates on prices and volume, while delayed data may be sufficient for more passive investment approaches.
- What forms of analysis use Depth-of-Book data?
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Depth-of-Book can be used as part of technical, quantitative and fundamental analysis. It is a versatile tool which can help optimise trade entry and exit points, or gain an insight into market sentiment.
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