A market data subscription includes information on completed trades as well as current price and volume availability in various financial markets. Traders subscribe to the market data for their markets through their brokers and will choose their market data subscriptions based upon the markets they will be trading.
For example, a trader that wants to trade individual stocks will need a market data subscription to the NYSE or NASDAQ stock exchange or whatever stock exchange the stocks they want to trade are listed on. A trader that only wants to trade a specific futures contract (or several) will need to request market data for those specific markets from their broker.
Forex brokers typically offer Level 1 data for all their product offers, while some offer Level II market data. With forex brokers, you don't need to subscribe to the data. When you log into your trading platform, it should already be available to you.
In many cases, Level I market data offers enough information for most traders. Level II gives additional insight that might be a waste or even overwhelming those who don't need it.
Level I Market Data
Market data is usually available as two different subscriptions (depending upon the markets in question). You can choose from Level I market data and Level II market data.
Level I market data includes all of the standard trading information for a market, which is the following:
- Bid price: The highest price that a trader is willing to buy an asset at.
- Bid size: The number of shares, forex lots, or contracts available at the bid price.
- Ask price: The lowest price that a trader is willing to sell an asset at.
- Ask size: The number of shares, forex lots, or contracts available at the asking price.
- Last price: The price at which the most recent trade was completed.
- Last size: The number of shares, forex lots, or contracts traded in the most recent trade.
What Else Is in Level II Data?
Level II market data includes all of the standard trading information for a market (Level I market data) along with some additional trading information:
- Highest bid prices: The highest bid prices are the prices (usually at least several prices are shown) where traders have placed orders to buy. This means you see the current bid and bids currently below it. Actively traded stocks typically have bids every $0.01 below the current bid, and in actively traded futures, there is typically a bid for each tick below the current bid. Gaps between the current bid and next bid typically mean the stock or contract has a larger bid/ask spread and less volume.
- Bid sizes: The number of shares, forex lots, or futures contracts available at each of the bid prices.
- Lowest ask prices: The lowest prices (usually at least several prices are shown) where traders have placed orders to sell. This means you see the current ask and asks currently above it. Actively traded stocks typically have asks (offers) every $0.01 above the current offer, and in actively traded futures, there is typically an offer for each tick above the current offer. Gaps between the current ask and next ask typically mean the stock or contract has a larger bid/ask spread and less volume.
- Ask sizes: The number of shares, forex lots, or futures contracts available at each of the ask prices.
Level II market data provides additional trading information, which is most often used by day traders to try and make short-term predictions on the direction of the price.
Which Level to Choose?
Many new traders do not know which level of market data they will need and subscribe to all of the market data. Since you pay a monthly fee for each market's data, subscribing to unnecessary data results in unnecessary trading costs.
Most traders only require Level I market data because it provides all of the trading information they need to display the price charts that they will use to perform analysis and make trading decisions. For many traders, watching the constant flurry of changing bid and ask prices on the Level II will result in information overload, which could have a detrimental effect on their trades.
Level II market data might be required for some trading strategies that attempt to isolate strong buyers or sellers in the Level II data. The strategy would require piggybacking on the direction that buyer/seller will push the price in the short term. This is typically a scalping strategy, where traders take advantage of very short-term patterns they see in the bidding/offering activities of other traders in a particular market.
The Correct Way to Choose Market Data
If you are a new trader, you'll only need Level I market data for the specific markets you want to trade. Opt to keep your costs as low as possible at the beginning of your trading journey. If you want to trade more markets later or try using Level II data, you can always have your broker add it.