Order Book, Level 2 Market Data and Depth of Market

Learn the differences between market data feeds

traders create market depth through buying and selling
Market depth is created by traders bidding and offering to buy or sell.. Jonathan Kim/Getty Images

One of the tools day traders use to make their trades is market data, commonly referred to as Level 1 and Level 2 market data, or market depth. The market data includes information about the prices and the completed trades for a market. Traders can choose various levels of market depth based on their trading needs.

Level 1 Market Data

Basic market data is known as level 1 market data, and includes the following information:

  • 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 that are 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 that are available at the ask price.
  • Last price: The price at which the most recent trade was completed.
  • Last size: The number of shares, forex lots or contracts that were traded in the most recent trade.

Level 1 market data provides all of the information needed to trade using most trading systems. If you are trading a price action or indicator based strategy, then Level 1 market data should satisfy your informational needs. 

Scalpers, and traders who trade based on changes in how other traders are bidding and offering (offer and ask are used interchangeably), will need Level 2 market data, which provides multiple levels of bids and offers.

Level 2 Market Data

Additional market data is known as level 2 market data, the order book, or the depth of market, and includes the following additional information:

  • Highest bid prices: The highest 5 to 15 prices (depending upon the market) where traders are willing to buy an asset. This means you not only see the current bid, but also all the bids currently below it. In actively traded stocks, there will typically be bids every $0.01 below the current bid, and in actively traded futures, there will typically be a bid each tick below the current bid. If there is a gap between the current bid and next bid, that typically means the stock or contract may experience a larger bid/ask spread and less volume.
  • Bid sizes: The number of shares, forex lots or contracts that are available at each of the bid prices.
  • Lowest ask prices: The lowest 5 to 15 prices (depending upon the market) where traders are willing to sell an asset. This means you not only see the current ask, but also all the asks above the current ask. In actively traded stocks, there will typically be asks every $0.01 above the current ask, and in actively traded futures, there will typically be an ask each tick above the current ask. If there is a gap between the current ask and next ask, that typically means the stock or contract may experience a larger bid/ask spread and less volume.
  • Ask sizes: The number of shares, forex lots or contracts that are available at each of the ask prices.

Level 2 market data provides the additional information that is needed to trade based on changes that occur in the bids and offers. Level 2 market data is also known as the order book, because it shows the orders that are currently pending for the market.

It is also known as the depth of market, or market depth, because it shows the number of contracts (or shares or lots) that are available at each of the bid and ask prices.

The attached chart shows bid and ask prices at multiple price levels (with the shares available at each price) in the SPDR S&P 500 ETF (SPY)

Availability and Pricing

All market data originally comes from the exchange that offers the market, and day traders receive the market data via their day trading brokerage. Both Level 1 market data and Level 2 market data are available for most day trading markets, including futures markets and stock markets. Some forex brokers also offer Level 2 market data, although not all.

The fees for Level 2 market data are usually slightly higher than Level 1 market data. Forex brokers, that provide market depth, don't typically charge for Level 1 or Level 2 market data.

Also known as: Order Book, Level 2, Level II, Depth of Market, DOM

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