Which is best? Or is it irrelevant? Hi! Considering Level 2 Data (Market Depth), I want to understand the advantages to have all the order book on an order-by-order basis (or tick-by-tick basis) versus only have a total aggregated volume by price levels? Who are the principal users/traders of each method? Can you give me an example of a trading strategy using the order-by-order view? Do stock exchanges and vendors should provide Level 2 Data on an order-by-order view? Thank you very much in advance. Congrats for this very useful and interesting website!

  • 1
    $\begingroup$ Some exchanges disseminate the full order book; some exchanges disseminate only a price level-aggregated book. You'll rarely get a choice. As for an example of a trading strategy, that is not what this site is for at all. $\endgroup$ – chrisaycock Jul 25 '13 at 15:45
  • $\begingroup$ Thank you very much AlgoQuant and chrisaycock for your answers and comments. Have a nice day. $\endgroup$ – Andrew Jul 25 '13 at 17:26

As someone pointed out, most times you do not have a choice because how the order book is disseminated heavily depends on the exchange. In Asia there are exchanges that even show the name of the counter party (though only aggregate volume not each order). Other exchanges provide a full "view", again others price level aggregates.

Broadly speaking, some strategies benefit from being able to process each single order. One of such strategy would be a predatory VWAP algorithm (I have written some myself) which greatly benefit from information of each order. In combination with what I mentioned that some exchanges show counter party names/ids in aggregate volume from, such individual order information can be incredibly valuable. It is not one of the hardest exercises to quantitatively identify large VWAP orders that are "worked" in the market. Any individual order information is highly valuable in understanding whether they are aggressive, neutral, or defensive in their trading approach which in turn will give a lot of information about whether they most likely "chase" certain short-term momentum or wait to buy on expected pull-backs. Sorry but I am not able to pass on more detailed information but I think that should be detail enough to understand when order by order information can be put to use.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.