Introduction

Real Time Data from NSE, BSE & MCX is distributed to various data vendors as 4 different levels. These levels are mainly based upon the amount of real time market depth (order book) provided by the exchanges. This precision and the knowledge of market pricing is far more important for the day traders than for a long term investor.

The 4 Levels of Real Time Data

There are 4 different Levels of Real Time Data from NSE, BSE and MCX (vary from market to market) :

• Level 1
• Level 2 / Level 3
• Tick By Tick (TBT)

What is Market Depth?

Market depth is the order book or an electronic list of buy and sell orders. This list is organized by price level and updated to reflect real-time market activity. Most of today’s trading platforms offer some type of market depth display. This allows the traders to see the "buy and sell orders", waiting to be executed. This could include the best bid and ask prices and the size of all the bids and offers. The Market Depth, therefore, mainly segregates the different levels of the real-time data feed from the NSE, BSE & MCX.

Level I Real-Time Data from NSE, BSE & MCX

Level 1 data includes only the Real Time Data of the first level in the order book. This includes the Best Bid and Best Ask, plus the total accumulated volumes displayed as Bid Size and Ask Size. Depending on the exchange the number of orders might also be made available for each side as an order. Currently, the number of orders is not provided by any exchange in India. The Basic market data is known as level 1 market data, and mainly includes the following information:

• Bid price: The highest price that a trader has offered and is willing to buy the asset at.
• Best Bid size: The number of shares, lots, or contracts that are available at the bid price.
• Ask price: The lowest price that a trader has offered and is willing to sell the asset at.
• Best Ask size: The number of shares, lots, or contracts that are available at the ask price.
• Last Traded Price: The price of the most recent trade.
• Traded Quantity: The number of shares, lots, or contracts traded in the most recent trade.

Level 1 market data provides all of the information needed to trade using most trading systems. If you trade price action or indicator-based strategy, then Level 1 market data should satisfy your informational needs. Level 1 Data is also sufficient for complex indicators, including Market Profile, Market Balance, Delta Divergence, etc. If you are not doing Depth of depth-of-market trading, Level 1 data is all you need. Scalpers who trade based on changes in how other traders are bidding and offering will need Level 2 market data.

Level 2 Real-Time Data from NSE, BSE & MCX

This type of quotation system is a step up from Level 1. Data providers offer Level 2 market data at a premium to Level 1. It offers extra information that is neither useful for normal day traders nor for long-term investors. Level 2 market data is also known as the ‘order book’. Level 2 market data shows the trader a bigger picture of the market order flow. This is because it shows the orders that are currently pending for the market. It is also known as the ‘depth of market’ (DOM) or ‘market depth’. This is because it shows the number of shares or lots that are available at each bid and ask price. In Level 1, the trader was only able to see the best prices for buying and selling. He could not look any deeper into the details of other less competitive orders on the system. The distribution of noncompetitive orders is important to institutional investors who plan to buy or sell large blocks of shares. Depending on the exchange the level of market depth (of the order book) can be 5, 10, or 20 levels. Normally the level of depth is 5 for Level 2, Real Time Data from NSE, BSE & MCX.

How can Level 2 Market Data be Viewed?

Market depth data can be viewed on a separate Level 2 window or a price ladder. Because market depth is in real-time, it changes constantly throughout the trading session. A "Price Ladder" or "DOM Display" shows each price level in the middle column. The number of buyers at each price level on the left, and the number of sellers on the right.

DOM Displays

Another way to view market depth is to overlay it on a price chart, as shown in “Charting depth” (below). This is the same data that would appear on a Level 2 window or DOM. The only difference between the two is the visual presentation. In this example, the levels of market depth are displayed over the right-hand side of a price chart, next to the various prices.

Charting the Market Depth

Green bars represent the buy orders. The size of each green bar reflects the relative number of shares or lots that buyers would like to purchase. Red bars indicate market participants who want to sell. The size of each red bar reflects the number of shares or lots that traders would like to sell.

Level 3 Real-Time Data from NSE

NSE Real-Time Data also provides a 20-level deep order book. This is a subset of the Level 2 Data, known as Level 3. Here, Level 2 provides market depth data up to 5 best bid and ask prices. Level 3 provides market depth data up to 20 best bid and ask prices. Everything else in Level 3, is the same as Level 2. More details of the various Levels provided by the NSE can be obtained from the NSE Website (Data Vending Info).

Tick By Tick Real-Time Data from NSE

The NSE provides the Tick by Tick Feed. This feed consists of every order or a change in the order. It includes:-

• A new order accepted & added to the order book
• Any order canceled
• Or, any order modified and added to the order book. It contains the new and old image (i.e. price and quantity) of the order.
• Trade – when any order is fully or partially executed.
• Market Orders added to the book
• Fully or Partially Traded Market Orders

This feed sends a huge amount of data. For just one symbol, say, the NIFTY future, the number of trades goes to 200 – 300 trades per second. This much data is not easy to handle. It also needs better applications to churn out meaningful information from this data. This feed works best on collocated servers and the LAN of the exchange. If you required this feed at your location, from a data vendor, you would need a leased line and also a specific software different from Amibroker or NinjaTrader, which can crunch the huge data flowing from the exchange with micro second-time stamps. And if you were able to do that, you would also need to be able to trade instantly. Therefore, this feed is not for the retail traders or fund houses. This feed is best suited for High-Frequency Trading (HFT) with servers co-located at the exchange.

Main Difference between Level 1 and Level 2 Market Data?

If you are a new trader, then you only need level-I market data. You can always add Level II data, later, if you wish. Level 1 market data provides all of the trading information that is needed to display the price charts. This is what you will use to perform analysis and make trading decisions. For many traders, watching the constant flurry of changing bids and ask prices on the Level 2 will result in information overload. This could have a detrimental effect as opposed to a positive one.

Can Level 2 Data be useful?

Yes, because it not only shows, where the price is now but where it is likely to be soon. Some trading strategies might require Level 2 market data. Typically, this data be used in a scalping strategy, where traders take advantage of short-term patterns seen in the bidding/offering activities of other traders. Also, for example, if a big fund wished to sell 5 crore shares in a medium-sized company. Using level 1 data, they may see that the highest bid price on the market is Rs.2000 for 50k shares. The fund manager will now know that they can sell their first 50k shares at Rs. 2000. However, the fund managers will have to accept less in order to shift the rest of their holdings. Therefore they would then trade at the next best bid price, and so on, receiving marginally less for their shares each time they exhaust an order in the marketplace. It would therefore benefit the fund manager to be able to assess how quickly the competitiveness of the bid prices trail off before they place a large block of shares for sale. This is called - being able to see the ‘depth’ of the market. If the competitive orders are thin on the ground then they may decide to delay their sale or only sell a small batch. As a result of strong demand; the fund may be able to offload its shares without moving the share price down too much and achieving the best deal for their account holders.

Conclusion

This demonstrates why level 2 data is quite pointless for your average day trader. Trading in such small quantities will rarely exhaust the bid price or offer price which they could see on level 1. Other than very large institutions, the only other viable market participant who could fully utilize such data would be a high-speed, automatic trading algorithm that pays extremely low commissions. Hope, I have been able to give you an insight on the various levels of Real-Time market data & their implications in trading. Do leave your thoughts and comments below.