Tick by Tick Data: The Real War in The Real-Time Data Business

 

The aggregation of one-minute price and volume data provides useful information. Additional Level I and Level II data can improve both execution and exit decisions, especially in intraday operations, while it is sufficient for swing operations and certain intraday strategies/methodologies.

 

This information is being used in my discretionary trading, and the outcomes are promising. I've also begun to work on the difficulties of data processing and parsing (which is between one and two orders of magnitude more complex than the regular OHLC candles). This is something I do with a quantitative perspective in mind.

 

This helped us gain a better and more organized grasp of the many real-time data feed standards, which we will explain in this piece. We explain what the different levels of real-time data accessible from different exchanges and market data vendors represent, as well as a quick analysis of what they're valuable for and some examples of how they're used, both by normal trading platforms and specialized quantitative software. Both levels I and II are examined, as well as an introduction to level III.

 

What is Level I

Level I improves the information available to the operator by providing the most recent Bid and Ask quotes as well as completed tick trades. In the industry, this is referred to as "top of book" for the most recent bid/ask quotes, and "the tape" or "time & sales" for completed orders. These two feeds, when combined, can provide insight into short-term bullish or bearish pressure and serve as the foundation for constructing volume profiles and order flow data.

 

The insight comes from the fact that in order to start a bullish trend, the price must fill the ask side of the order book, and in order to start a bearish trend, it must fill the bid side of the order book. When there is a distinct trend or pressure on one side of the order book, it could indicate that supply is outstripping demand or vice versa.

 

What is Level II

Level II adds to Level I by providing more data, such as order book depth. This implies you may rely on information concerning pending orders that haven't been filled yet. The data is updated in real-time and can assist in identifying high liquidity locations that could be regarded as short-term price support or resistance levels.

 

When compared to Level I, the parsing requirements for Level II are much higher because instead of dealing with just one tick price level, a certain range of ticks (known as the depth of book) must be updated and processed in real-time. The names and definitions of these terms vary depending on the source, but they are usually referred to as detailed above. In any case, the most important thing is to grasp the basic concepts.

 

What is Level III

Level III comprises all raw data directly from the exchange, so it contains every piece of data concerning a certain transaction. Dealing with this data stream necessitates dealing with extremely high throughput as well as a direct link to the exchange. Certain exchanges, such as Frankfurt, only allow institutional investors to connect as part of their approval procedure, while others, such as Chicago, do not have any restrictions as long as you have the funds (German vs. American mentality, I presume). In any event, whether you are an institutional HFT player or work in conjunction with one, the related costs, money, and infrastructure required to utilize Level III data render it ineffective.

 

Conclusion 

A brief review of Level I and II market data feeds has been undertaken in this post. Level III has also been briefly discussed. Without going into detail about specific methods, an overview of how Level I and Level II data might help with discretionary intraday trading was presented. There have also been some remarks made about the difficulties in dealing with this degree of information in data flows.

 

Overall, using at least Level I and Order Flow data in our trading techniques can improve our win-loss ratio, lowering both risks and drawdown. The additional information can also help to reduce the stress of intraday trading by allowing for the more precise entry and exit points to be discovered.

 

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