When deciding between Level 2 and Level 3 market data, the choice comes down to your trading needs and technical setup:
- Level 2 Data: Offers aggregated order book info for 5–10 price levels. Ideal for retail traders using strategies like scalping or momentum trading. Requires moderate infrastructure.
- Level 3 Data: Provides every individual order with unique identifiers for up to 20+ price levels. Designed for institutions and advanced traders using high-frequency or algorithmic strategies. Demands high-performance computing.
Quick Comparison
| Feature | Level 2 Data | Level 3 Data |
|---|---|---|
| Market Depth | 5–10 price levels | 20+ price levels |
| Order Visibility | Aggregated orders | Individual orders with unique IDs |
| Data Volume | Moderate | High |
| Primary Users | Retail traders | Institutions, market makers |
| Strategies | Scalping, day trading | High-frequency, algorithmic trading |
| VPS Requirements | 4–6 cores, 8–16GB RAM | 24 cores, 64GB+ RAM |
| Latency Needs | Sub-millisecond | Ultra-low latency (microseconds) |
| Cost | Lower | Higher |
If you’re a retail trader, Level 2 data is sufficient for most strategies. For institutional-grade precision and speed, Level 3 data is the way to go. Choose based on your trading goals and infrastructure capabilities.
How to Use Level 2 Market Data? – Market 1,2,3 Level Data!
Level 2 Market Data Overview
Level 2 market data goes beyond the basic bid/ask spread by offering a detailed view of the order book, showing all open orders at various price levels above and below the current market price.
"Level 2 (L2) market data refers to market data that includes all trades and updates to aggregated book depth for a fixed number of price levels." – Databento Microstructure Guide
Data Structure and Components
Level 2 data provides a comprehensive breakdown of the market by including market maker IDs, specific price levels, and order sizes. This data unveils the entire order book, not just the best bid and ask prices, giving traders a layered perspective of market activity. By analyzing this information, traders can identify key support and resistance zones. For example:
- Support levels are often indicated by large buy orders sitting at lower price points.
- Resistance levels emerge when significant sell orders cluster at higher price levels.
This granular view of the market allows traders to interpret market intentions and adjust their strategies accordingly.
Trading Applications
Level 2 data is particularly useful for strategies like momentum trading and scalping, where understanding market depth can directly impact trading outcomes. Traders use this data to:
- Gauge market sentiment: Observing the size and distribution of orders helps assess whether the market leans bullish or bearish.
- Evaluate liquidity: Identifying high-liquidity stocks ensures smoother trade execution, while avoiding low-liquidity stocks reduces exposure to unnecessary volatility.
- Time entries and exits: Futures traders, for instance, rely on Level 2 data to pinpoint optimal moments for entering or exiting positions.
It’s important to note that large orders can sometimes be split into smaller ones to mask true intentions, a tactic that requires traders to remain vigilant. Combining Level 2 data with technical analysis and other indicators is essential, especially during volatile periods, to avoid acting on misleading signals.
VPS Requirements for Level 2 Data
To handle the demands of processing Level 2 data effectively, traders should invest in a Virtual Private Server (VPS) with the following specifications:
- Processor: A dual- or quad-core CPU is the baseline, but higher frequencies improve real-time data handling.
- RAM: At least 8GB is recommended for smooth operation.
- Storage: SSD drives are essential for fast data access.
- Network: A low-latency connection to trading servers is crucial for minimizing delays during trade execution.
The physical location of the VPS also matters. For the best performance, choose a provider with servers near the financial exchanges where you trade.
As of October 2024, data feeds like IEX‘s DEEP service cost approximately $2,500 per month. Additionally, a single month of US equities Level 2 data can exceed several terabytes, even when stored in an efficient binary format. This highlights the need for robust storage and processing capabilities for traders serious about leveraging Level 2 data.
"NinjaTrader VPS Hosting offers traders a stable and high-performance environment optimized for running the NinjaTrader platform. With low-latency connections to trading servers, 24/7 uptime, and enhanced security features, NinjaTrader VPS streamlines order execution and improves trading performance." – VPSMart
Level 3 Market Data Overview
Level 3 market data offers traders a detailed, granular view of market activity, going beyond the aggregated information seen in Level 2 feeds. This data includes individual orders, each with a unique identifier, and provides a full picture of market microstructure, making it easier to analyze order flows and trading behavior.
"Level III data is commonly referred to as the real-time bid price, ask price, the size of resting orders sitting through the whole book, or 20+ levels of price, and the size of the last trade." – TRADEPRO Academy TM
With this expanded view, traders can access every available price level, see the number of orders at each price, and track the volume of securities ready for execution. This level of transparency is invaluable for understanding and tracking individual order movements.
Detailed Order Visibility
What sets Level 3 data apart is its ability to display individual orders with unique identifiers, rather than summarizing them into aggregated price levels. This real-time tracking of order events allows traders to pinpoint where significant players are entering the market and anticipate potential price shifts based on institutional activity.
For example, traders can observe large orders near the current market price and track whether they remain, are canceled, or get fully executed. This kind of insight provides a real-time edge, helping traders predict market reactions and price movements that might not be apparent with Level 2 data.
Advanced Trading Strategies
Level 3 data opens the door to more sophisticated trading strategies. By analyzing the complete order flow, traders can identify hidden iceberg orders and track institutional trading patterns. This level of detail allows for refining trading algorithms, enabling real-time decision-making with exceptional precision. Algorithmic trading, in particular, benefits greatly from the accuracy and speed provided by Level 3 data, which supports split-second decisions and automated strategies.
Additionally, traders can spot market reversals by analyzing absorption and exhaustion patterns. These patterns, which combine last-traded quantities with delta (the imbalance between buyers and sellers), provide clues about potential turning points in the market.
In March 2024, BMLL Technologies expanded their Level 3 futures data offerings. CEO Paul Humphrey highlighted the importance of this development:
"Packaging our futures product is a natural evolution to our core equities offering…the ability to analyse these complex and diverse data sets is vital. Because we harmonise Level 3 Futures Data into a readily usable format, our clients can profit from unparalleled predictability at their fingertips."
Dr. Elliot Banks, the company’s CPO, emphasized the need for scalable platforms to handle the vast data demands of the futures market:
"The sheer size of the futures market requires a scalable, cloud based platform that can provide the insight and analytics needed for the ever increasing data demands of market participants…With our harmonised data and the BMLL Data Lab, they can now look at multiple years of trading history on CME, Eurex and ICE in a consistent format, and they can quickly and easily test strategies."
To fully capitalize on these strategies, traders must ensure their infrastructure is optimized to handle the demands of Level 3 data.
High-Performance VPS Requirements
Using Level 3 data effectively requires a VPS setup that can handle the immense data volume and operate with ultra-low latency. In high-frequency trading, even microsecond delays can lead to significant financial losses.
Infrastructure with ultra-low latency – measured in microseconds – is non-negotiable. A one-second delay could cost a trader an estimated $100,000 annually due to missed trades and slippage. This makes investing in high-performance VPS configurations essential for traders relying on Level 3 data.
Key VPS requirements include:
- CPU: At least 8 cores with maximum clock speeds for fast processing
- RAM: 32GB or more to manage the increased data flow
- Storage: NVMe Gen4 SSDs for rapid data access
- Network: Sub-millisecond latency to exchange servers for seamless execution
- Location: Proximity to major exchanges and data centers to minimize latency
Level 3 data streams generate significantly more information than Level 2 feeds, creating challenges for storage and processing. To maintain real-time performance, traders need robust systems capable of handling these demands without delays or bottlenecks.
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Level 2 vs Level 3 Data Comparison
Understanding the differences between Level 2 and Level 3 data is essential for selecting the right trading infrastructure and strategies. These two data types serve distinct purposes and require different levels of technical resources.
Level 2 data provides a snapshot of market depth, showing the top 5–10 bid and ask prices. It highlights real-time bids and offers beyond the current best bid and offer.
"Level II data shows you real-time bids and offers at different price levels, beyond the current best bid and best offer. These are limit orders, meaning interest to enter the market, buy or sell. These are commonly referred to as passive orders in the market." – TRADEPRO Academy TM
On the other hand, Level 3 data offers a deeper insight, displaying up to 20+ price levels. It provides granular details on every individual order at each price level, making it the most detailed data available.
Side-by-Side Comparison
Here’s a quick look at how Level 2 and Level 3 data differ:
| Feature | Level 2 Data | Level 3 Data |
|---|---|---|
| Market Depth | Up to 5–10 price levels | Up to 20+ price levels |
| Order Visibility | Aggregated orders at price levels | Individual orders with unique identifiers |
| Data Volume | Moderate data streams | High-volume data streams |
| Primary Users | Retail traders, swing traders | Institutions, registered market makers |
| Trading Strategies | Scalping, day trading | High-frequency trading, algorithmic trading |
| Processing Requirements | Standard processing power | High-performance computing |
| VPS Specifications | 4–6 cores, 8–16GB RAM | 24 cores, 64GB RAM |
| Latency Requirements | Sub-millisecond preferred | Ultra-low latency essential |
| Data Protocol Optimization | Standard optimization | Highly optimized protocols |
Key Insights on Usage
Level 2 data is ideal for traders looking to assess market depth and analyze supply and demand dynamics. It provides visibility into bid/ask prices and volumes, which is particularly useful for scalpers aiming to anticipate market movements. The moderate data volume allows it to run efficiently on standard VPS setups without requiring significant processing power.
Level 3 data, however, offers a much more detailed view. It includes updates on every order – whether it’s a trade, addition, cancellation, or modification – requiring users to construct a limit order book on their end. Its highly optimized protocols also provide an edge by reducing latency. However, the high data volume and complexity mean it demands powerful infrastructure, including high-performance VPS configurations and ultra-low latency setups. Co-location near exchange servers is often necessary to achieve the required speed.
Choosing between Level 2 and Level 3 data boils down to your trading needs and technical capabilities. While Level 2 is sufficient for most retail traders, Level 3 is tailored for institutions and advanced trading strategies that rely on speed and precision.
TraderVPS Configuration for Market Data
Once you understand the differences in market data, the next step is configuring your VPS to match your trading needs. Getting this configuration right is essential for improving the performance of Level 2 and Level 3 market data on NinjaTrader. The computing power and network requirements differ between these data types, so it’s important to choose a VPS plan that aligns with your trading strategy.
Your trading performance hinges on the complexity of your strategy and the volume of data you handle. For simpler Level 2 setups, an 8GB RAM configuration with a 2–4 core CPU is usually sufficient. However, if you’re running more complex strategies or handling larger data streams, you’ll need a more robust setup. Opting for a higher-frequency CPU and increasing RAM when using multiple applications can also enhance real-time data processing speeds.
"NinjaTrader VPS Hosting offers traders a stable and high-performance environment optimized for running the NinjaTrader platform. With low-latency connections to trading servers, 24/7 uptime, and enhanced security features, NinjaTrader VPS streamlines order execution, and improves trading performance."
- VPSMart
VPS Plans for Level 2 Data Trading
For Level 2 market data trading, TraderVPS offers Lite and Pro plans that balance cost and performance effectively. These plans are designed to handle the moderate data streams and processing demands typical of Level 2 trading.
- VPS Lite Plan ($69/month): Includes 4x AMD EPYC cores and 8GB DDR4 RAM. This setup is ideal for running 1–2 charts for Level 2 trading and meets NinjaTrader’s general system requirements. It provides enough resources for basic data processing without unnecessary extras.
- VPS Pro Plan ($99/month): Offers 6x AMD EPYC cores and 16GB DDR4 RAM. This configuration is better suited for more intensive setups, supporting 3–5 charts and multiple indicators while maintaining smooth data feeds. Traders using data providers like Rithmic, which supplies over 400 price levels of Level 2 data, will find the Pro plan’s additional processing power beneficial.
Both plans feature 1Gbps+ network connectivity and NVMe storage, ensuring fast data handling and minimal delays.
High-End VPS for Level 3 Data Trading
Level 3 market data, with its higher demands, requires significantly more powerful configurations. TraderVPS offers Ultra and Dedicated Server plans tailored for these intensive needs.
- VPS Ultra Plan ($199/month): Equipped with 24x AMD EPYC cores and 64GB DDR4 RAM, this plan is built for high-performance computing. It efficiently handles large data volumes and real-time order tracking, making it a strong choice for Level 3 data processing.
- Dedicated Server Plan ($299/month): For the most demanding setups, this plan includes 12x+ AMD Ryzen cores, 128GB DDR4/5 RAM, and 10Gbps+ network connectivity. It’s perfect for traders implementing high-frequency strategies or processing Level 3 data across multiple markets simultaneously.
Level 3 trading also emphasizes ultra-low latency due to the high data throughput from real-time order updates. Even a one-second delay can cost a trader an average of $100,000 annually in missed opportunities and slippage. To minimize latency, geographic proximity to exchange servers is critical, with co-location often being necessary.
Both the Ultra and Dedicated Server plans come with additional features like multi-monitor support (up to 4 monitors for Ultra and 6 for Dedicated) to help traders manage complex data streams. They also include expanded NVMe storage (ranging from 500GB to 2TB+) for tasks like data logging and backtesting advanced algorithmic strategies.
Aligning your VPS configuration with the type of market data you use ensures you get the most out of NinjaTrader, boosting both performance and efficiency.
Selecting the Right Market Data Type
Picking the right market data isn’t just about having access to more information – it’s about choosing data that aligns with your trading strategy and your technical setup. The complexity of the data should match your trading goals and the capabilities of your infrastructure.
Level 2 data is ideal for traders focused on analyzing supply and demand dynamics. This type of data provides real-time bids and offers across different price levels, making it easier to spot potential resistance and support zones. It’s also a valuable tool for refining your entry and exit points.
"Level 2 data is important for traders because it shows the full range of open orders for a stock, not just the current best bid and ask price."
However, keep in mind that the effectiveness of Level 2 data can shift with market volatility. Large orders, for example, may be split or canceled, which could affect your analysis. For more advanced strategies, a deeper dataset might be necessary.
Level 3 data takes it a step further by offering the most detailed market view available. It can display up to 20 price levels, making it a critical resource for professional traders and institutions.
"Level 3 data represents the most comprehensive tier of market data available to traders and financial institutions."
- CoinAPI.io
Due to its complexity, Level 3 data is usually limited to professional traders and institutions. It’s especially useful for high-frequency traders and those who need extremely precise market insights.
Budget considerations play a big role here. Subscribing to Level 2 data is generally more affordable, and it pairs well with plans like TraderVPS Lite ($69/month) or Pro ($99/month). On the other hand, Level 3 data comes with higher subscription costs and requires more advanced infrastructure. Plans like TraderVPS Ultra ($199/month) or a Dedicated Server ($299/month) are often necessary to handle the increased data load.
Your choice of market data should align with your trading frequency and strategy complexity. If you’re executing dozens of trades daily, the cost of Level 3 data might be worth it. But for most retail traders focused on swing trading or longer-term positions, Level 2 data provides enough insight without the need for costly infrastructure upgrades. The right data choice should also complement your VPS setup, ensuring your trading platform performs efficiently.
Lastly, don’t forget that both Level 2 and Level 3 data require separate subscriptions through your trading platform. Be sure to include these recurring costs in your overall trading budget.
FAQs
What should I consider when deciding between Level 2 and Level 3 market data for my trading strategy?
When choosing between Level 2 and Level 3 market data, it all comes down to how much detail your trading approach needs. Level 2 data gives you a real-time snapshot of bids and offers, typically displaying the top 5–10 price levels on both sides of the market. This makes it a great fit for retail traders who want a quick overview of market depth and liquidity.
In contrast, Level 3 data goes much deeper. It includes up to 20 bid and ask prices, hidden orders, and even details about the identities of market participants. This level of insight is especially useful for institutional traders or anyone relying on advanced algorithmic strategies that demand a thorough understanding of market behavior.
The right choice depends on your trading objectives. If you’re focused on quick trades or scalping, Level 2 data might be all you need. But for strategies that require detailed market analysis or ultra-fast execution, Level 3 data offers a clear edge.
What VPS specifications are needed to efficiently handle Level 2 and Level 3 market data?
When working with Level 2 market data, your VPS needs enough horsepower to process real-time bids and offers across various price levels. This demands low latency, quick data processing, and a dependable network connection to keep trading operations running smoothly.
Handling Level 3 market data, however, raises the stakes. This data includes detailed insights like order sizes and full market depth, which means a standard VPS might not cut it. You’ll need more robust hardware – think extra CPU cores, increased RAM, and fine-tuned network configurations. In some cases, especially with high-frequency trading, GPU-powered servers might be necessary to tackle the added complexity and ensure trades are executed without delay.
Choosing VPS specifications based on the type of market data you’re using is key to building a trading setup that’s fast, efficient, and ready for action.
Why do retail traders often choose Level 2 market data over Level 3, and how do their costs compare?
Retail traders often opt for Level 2 market data because it provides a clear and detailed snapshot of the order book, showing multiple bid and ask prices. This level of information is typically enough for most trading strategies, helping traders gauge market depth and track price movements without the added layers of complexity found in Level 3 data.
In contrast, Level 3 data offers more advanced tools, such as access to hidden orders and the ability to execute trades directly. These features are primarily geared toward institutional traders who require a higher level of market interaction and insight.
When it comes to pricing, Level 2 data is much easier on the wallet, with monthly costs ranging from $10 to $30, depending on the provider and package. Meanwhile, Level 3 data – designed for institutional use – can exceed $100 per month, making it a less practical choice for retail traders working within tighter budgets.
