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Order Book, Level 2 Market Data, and Depth of Market

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One of the tools that day traders use to make their trades is the market data for their markets. The market data includes information about the prices, and the completed trades for the market, and is available in two different levels depending upon the information that is required :

Level 1

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 pay to buy a contract
  • Bid size: The number of contracts that are available at the bid price
  • Ask price: The lowest price that a trader is willing to accept to sell a contract
  • Ask size: The number of 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 contracts that were traded in the most recent trade

Level 1 market data provides all of the information that is needed to trade using most trading systems, including the moving average bounce, zero line cross, and pivot point bounce trading systems.

Level 2

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 or 10 prices (depending upon the market) that traders are willing to pay to buy a contract
  • Bid sizes: The number of contracts that are available at each of the highest bid prices
  • Lowest ask prices: The lowest 5 or 10 prices (depending upon the market) that traders are willing to accept to sell a contract
  • Ask sizes: The number of contracts that are available at each of the lowest ask prices

Level 2 market data provides the additional information that is needed to trade using trading systems that follow the order flow, and advanced volume based trading systems. Level 2 market data is also known as the order book, because it shows the orders that are currently pending for the market, and is also known as the depth of market, because it shows the number of contracts that are available at each of the available prices.

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 brokerages. Both level 1 market data and level 2 market data are available for most day trading markets, including most futures markets and stock markets. The fees for level 2 market data are usually slightly higher than level 1 market data.

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

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