{"id":2169,"date":"2020-06-18T14:38:27","date_gmt":"2020-06-18T14:38:27","guid":{"rendered":"https:\/\/devexperts.com\/blog\/?p=2169"},"modified":"2022-08-11T16:30:02","modified_gmt":"2022-08-11T16:30:02","slug":"behind-the-charts-a-brief-introduction-to-market-data-vendors","status":"publish","type":"post","link":"https:\/\/devexperts.com\/blog\/behind-the-charts-a-brief-introduction-to-market-data-vendors\/","title":{"rendered":"Behind the Charts: a Brief Introduction to Market Data Vendors"},"content":{"rendered":"\n
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What\nis market data?<\/strong><\/h2>\n\n\n\n

If\nyou\u2019re new to the world of market data, you could be forgiven for thinking that\nthe only important piece of information is the price. After all, when you open\na chart, the price seems to be the main thing animating all the activity you\nsee there. However, there\u2019s a lot more to market data than just the last price\nat which an asset was bought or sold. <\/p>\n\n\n\n

Any\nwidely traded asset will generate an enormous amount of data. Even the price\nitself can be broken down further than just the number that you see on the\nticker. That figure is only the price at which the last trade was made. Then\nyou have the highest bid and the lowest ask prices, which tell you the best\nrates that sellers and buyers, respectively, can hope to currently secure (also\nknown as \u201cLevel 1\u201d data or the \u201cTop of Book\u201d). Beyond this you also have the\nrest of the order book, which is a list of all the different instructions to\nbuy or sell that specific asset, in what quantities and at what prices (also\nknown as \u201cLevel 2\u201d or \u201cDepth of Book\u201d data). So, already, we\u2019ve gone from a\nsingle figure (the current price) to an entire list of ever-changing numbers\ndescribing different prices and volumes.<\/p>\n\n\n\n

But it doesn\u2019t just end there. Market data also includes other information such as the symbol used to identify that asset, the name of the issuer, the exchange it trades on, what currency it\u2019s priced in. For more complex assets you may have things like open interest and implied volatility (in the case of options), coupon level, issue and maturity dates (for fixed income securities) or front and back month data (in the case of futures contracts). Now picture all of these constantly changing data fields, multiplied by all the assets and asset classes currently trading all over the world.<\/p>\n\n\n\n

What\nare market data vendors?<\/strong><\/h2>\n\n\n\n

As\nwe\u2019ve seen, there\u2019s a great deal more to those red and green candles that\nyou\u2019re greeted with when opening your favourite charting platform. Now, the\norigin of all that data and the manner in which it can be made accessible\nvaries widely across venues. Assets like stocks, crypto and commodities are\ntraded on exchanges, whereas others such as FX are traded over the counter\n(OTC) or via electronic communication networks (ECNs). To complicate matters\neven further, different venues use different connectivity protocols for\nstreaming their data.<\/p>\n\n\n\n

Imagine\nyou\u2019re a trader wanting to access some of this data, or a brokerage that needs\nto select specific symbols for its clients from a wide variety of data streams.\nIn order to do so you would have to enter into separate agreements with each\nand every one of the venues that offer the data you require. There would also\nbe different hardware and software requirements for connecting to each one. So,\nnot only would you have to bear the cost of separate licensing agreements and\ndifferent hardware and software setups, there would also be significant lead\ntime, both in the brokering of these agreements and the development required to\nintegrate them if you don\u2019t already possess expertise in the various\ncommunication protocols.<\/p>\n\n\n\n

This is where market data vendors come in. Essentially, market data vendors are third parties that specialise in the procurement, connectivity and provision of market data. They have almost single-handedly democratised the availability of market data and are partly responsible for making online trading much more accessible to individuals than it was in the past.<\/p>\n\n\n\n

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Market data vendors are intermediaries who untangle information from financial venues worldwide for the retail trader.<\/figcaption><\/figure>\n\n\n\n

Why\ndo they exist?<\/strong><\/h2>\n\n\n\n

Before this novel breed of fintech company, anyone requiring access to market data had no other option than to go directly to the exchanges. Procuring market data in this way was both expensive and inflexible. You were essentially obliged to purchase entire bundles of market data, whether you required all the assets being offered or not. This had the effect of excluding individual traders as well as all but the largest of institutions from gaining access to all of this information. What market data vendors have done over the past decade or so is to massively simplify the process for accessing market data while simultaneously making it much more flexible and affordable. This has been achieved by going directly to the exchanges, establishing relationships and connecting to their streams, then \u201cnormalising\u201d the data by making it available over their own proprietary protocols. <\/p>\n\n\n\n

What\nare the benefits?<\/strong><\/h2>\n\n\n\n

A\nmuch larger cross-section of market participants can now efficiently and\naffordably gain access to quality market data through these third party vendors.\nThis has allowed individual traders and smaller brokerage firms to be much more\nagile and competitive. Market data vendors have also managed to greatly\nstreamline the process of gaining access to market data as now there is only\none licensing agreement that needs to be made and one connectivity protocol\nthat requires development for. <\/p>\n\n\n\n

Moreover,\nmarket data vendors are known to be far more business-friendly than the\nexchanges that they source their data from. Many have developed their own lines\nof products that allow for quick and easy integration with their protocols. As\nfintech firms they are also far more dev-friendly, and are often able to\ncustomise solutions specifically for their clients. <\/p>\n\n\n\n

This\ntailored approach filters down to the data itself, which is now available in a\nfar more bespoke manner than was ever possible before. When sourcing market\ndata from a third party vendor you are likely to be able to pick and mix\nstreams that can be tailored to your needs rather than being required to pay\nfor redundant information that you don\u2019t require. <\/p>\n\n\n\n

Conclusion<\/strong><\/h2>\n\n\n\n

Information is the life blood of markets. What we have witnessed over the past decade or so is a complete revolution in the way that market data is made available and distributed. This has allowed for previously excluded market participants and innovative new businesses to gain access to and make the most of otherwise siloed data. The information age has led to the democratisation of all manner of information and market data vendors are now carrying this process forward into the financial markets.<\/p>\n\n\n\n

Next time: <\/strong>Join us in part two of this series on the democratisation of market data, where we will be discussing the role of market data vendors for the retail trading industry.<\/p>\n\n\n\n

About dxFeed<\/h3>\n\n\n\n

This article was written by dxFeed, a market data provider for the global financial industry, delivering information to wealth management companies, brokers, quants, and retail traders. The engineering team of dxFeed has developed a proprietary quote distribution system and compressing algorithms to deliver loss-free financial data with the lowest latency from a variety of exchanges around the world. Subscribe to dxFeed’s newsletter<\/a> so as not to miss new articles educating about the world of market data.<\/em><\/p>\n\n\n\n

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