What is market data? Learn about its definition, types, sources, and applications to leverage it for informed decision-making in trading and investment.
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Market data is a broad category of information about the financial markets, consisting of essential details like price, bid/ask quotes, trading volume, trading period (high, low, open, or closed), etc. Relevant reports are compiled by trading venues before being distributed to traders or industrial firms. It is accessible across numerous global markets, from stocks to indices, forex, and commodities.
Traders leverage market data to evaluate the value of different assets and guide their decisions on entering or exiting trades. With comprehensive information about the intended asset, traders can effectively calculate market risk and assess the influence of real-time news events.
Reference data is a foundational type of information that provides context and details about financial instruments. It includes essential elements like instrument identifiers, market identifiers, counterparty identifiers, and corporate actions.
Unlike market data, which is dynamic, reference data is relatively static and supports back-office functions including end-of-day portfolio valuations, risk reporting, margin calculations, etc. These two types of data are also distributed through different channels. Market data is typically delivered as a real-time stream, while reference data is often provided in the form of snapshots or batch updates.
As such, market data and reference data serve distinct purposes within the financial industry. Market data provides the live condition of the market, which is why it is primarily used for making informed trading decisions. Conversely, reference data provides the essential context and background information, allowing stakeholders to conduct accurate analysis for transaction processing and other operational tasks.
Market data is often categorized into two types: Level 1 and Level 2 market data. They offer information with varying levels of depth and detail.
Level 1 market data is the most basic form of market data. It provides essential information such as the national best bid and ask prices for a security, along with the number of shares or contracts offered at those prices. Additionally, Level 1 data often includes the price and size of the last transaction made for that security.
For example, the level 1 market data of a certain company may be presented as such:
This level of information is usually sufficient for most traders, especially those who rely on charting techniques and fundamental analysis.
Level 2 market data offers a more comprehensive view by providing additional details about outstanding limit orders. It includes all bids and asks at various price levels below the best bid and above the best ask, revealing the depth of the market.
With the example above, level 2 market data may reveal the specific bid prices between $49.85 (the best bid price) and $49.92 (the best ask price), along with the number of shares of each outstanding order at every ask price.
This information is particularly valuable for traders who employ strategies that rely on understanding market liquidity and potential price movements. Hence, level 2 data is often referred to as “market depth” or “order book data” due to its ability to showcase the full spectrum of outstanding buy and sell orders.
Market data is comprehensive, encompassing both real-time and historical information. The real-time delivery of market data enables timely responses to changing market conditions, while access to historical data facilitates technical analysis and the development of informed trading strategies.
Additionally, market data is often organized under ticker symbols. This simplifies access and facilitates comparison across different financial instruments. Market pricing data is also separated from all other information. Thus, investors can streamline the analysis process even further, as the clear presentation of the data allows them to quickly identify relevant information for their operations.
The sheer volume of market data available can be overwhelming, making it difficult to filter out noise and identify relevant information. Effective data management and analysis tools are essential to navigate this challenge and extract meaningful insights from the vast amount of data.
Another consideration is the potential for data inaccuracies or inconsistencies, which may impact the ability to make reliable trading strategies. As such, investors and traders should carefully evaluate data providers and their track record in delivering high-quality, real-time information.
Market data is distributed through various channels, each provider with unique advantages and trade-offs. By understanding the characteristics of these sources, investors can select the most suitable market data provider based on their specific needs, budget, and technical capabilities.
Exchanges are the primary source of raw market data. They directly generate and distribute data from orders executed on their respective platforms. The market data from exchanges can even be formatted based on the investor’s needs.
While exchanges offer the highest level of customization and low latency, they also come with significant costs associated with the necessary hardware, software, and engineering resources, as companies have to maintain, transport, and process the data on their own. Due to these costs, exchanges are often used by large financial institutions and banks rather than smaller firms.
The services from these market data providers are often mutually inclusive of each other. The hosting providers offer aggregated market data from their own data centers and distribution networks, while the ticker plant vendors provide the technology for investors to access the hosting provider’s network.
Since these providers handle the backend infrastructure and data aggregation, they can be a cost-effective and time-efficient alternative to sourcing data directly from exchanges. Nevertheless, companies will still have to make greater initial investments in the necessary hardware and software to access the networks, especially for those seeking high-performance solutions.
Feed providers offer a simplified approach to market data access by delivering aggregated and normalized data feeds through APIs. This is particularly appealing for firms that employ algorithmic trading strategies, as it eliminates the need for complex infrastructure and reduces the upfront costs associated with setting up a dedicated data system.
However, feed providers may have limitations in terms of the types of data they offer, such as the level of market depth or the availability of specific data points. Thus, it is crucial to evaluate the specific feeds they offer and the delivery methods available. Consider factors such as the latency of the data feed, the types of data included (e.g., Level 1, Level 2), and anything relevant to customization or data access to ensure that the feed provider is the right fit.
One of the top feed providers that offer comprehensive and up-to-date data is TEJ. Beyond basic stock prices, TEJ covers a wide range of financial metrics, from company risk attributes to broker trading data across various regions in Asia, making them a valuable choice for traders and investors in the region.
Discover TEJ’s Market Data Solutions
Order management system (OMS) and execution management system (EMS) providers offer software solutions designed to streamline the process of handling trading orders. These software providers often include market data as part of their offerings, allowing investors to incorporate these data directly into their interface.
By providing a convenient and integrated solution, OMS and EMS software providers eliminate the need for separate data feeds or connections, making them ideal for companies that require cost-effective market data for display trading. Despite that, the level of customization and data access may be more limited compared to standalone market data providers. As such, OMS and EMS software providers might not be suitable for highly demanding activities like high-frequency trading or market making.
Market data offers a wealth of opportunities for those operating in the finance sector. By monitoring the market with comprehensive data, it is possible to gain valuable insights for informed decisions, allowing investors and stakeholders to enhance overall financial performance.
Market data often includes news feeds and event updates, allowing investors to monitor economic indicators, corporate announcements, and other factors that can impact market sentiment and prices. As investors stay updated on relevant news and activities of companies, they can evaluate potential investment candidates and also make forecasts of their future performances.
By analyzing historical price data and real-time market movements, investors can set trigger alerts for significant price changes, place stop-loss orders to automatically sell positions if they reach a predetermined price, and make timely portfolio adjustments to minimize potential losses. With this proactive approach, they can safeguard their investments against the ever-changing market conditions.
Market data becomes essential for traders who focus on short-term positions, as positions for intraday trading open and close within the same trading day. By accessing real-time price updates and market depth information, intraday traders can identify market fluctuations for potential entry and exit points, and then respond to execute trades with precision.
With real-time updates, market data can help investors employ algorithms and automated trading strategies. It can be fed to the algorithms for pattern analysis, allowing the system to execute trades based on predefined rules. By taking this digital approach, investors often achieve faster and more efficient operations.
To dive deeper into how market data analytics can help you identify opportunities and optimize your investment strategy, read our article below:
➤ Data Analytics in Stock Market: the Power of Data-Driven Investing
When selecting a market data provider, it is crucial to prioritize those that offer accurate, comprehensive, and up-to-date information. This ensures reliable analysis for informed investment decisions and allows stakeholders to gain a competitive edge in the market.
TEJ is a trusted market data provider of high-quality solutions. By combining chip analysis with daily institutional buy-sell data, we can help you monitor the stock markets across Asia, including Taiwan, China, Hong Kong, Japan, and South Korea. We also offer historical stock price data adjusted for dividends. With this, you can capture the true market conditions at specific points in time, facilitating accurate backtesting of investment strategies.
Designed to empower your analysis and strategy development, TEJ’s diverse data sets go beyond basic stock prices, they consist of various financial metrics, company risk attributes, and even broker trading information. By partnering with TEJ, you can access valuable insights and make data-driven investment decisions. Leverage our market data solutions and enhance your financial strategies today.
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