Over the many years trading and interacting with traders, I have constantly heard complaints that institutions have a big edge over retail traders due to lower trading costs, better platforms, and access to level 3 data. With our technology, and with our partner startups through the Rainmatter initiative, we have not only bridged this gap but have given retail traders an edge over institutions with better products and pricing. In the same spirit of democratisation, I am super excited to let you all know that we are now ready to give you all access to level 3 or 20 depth market data for the first time in India, probably the world.
What is level 3 or 20 depth?
Normally when you check the market depth for any scrip, you see the best 5 bids and offers, this is also called level 2 data.
Level 3 or 20 depth is the market depth with 20 bids and offers.
How are we bringing this to you?
The normal data feed that you see on the trading platforms is provided to the brokerage firm by the exchange which is then streamed to the clients. The default is 5 market depth which typically updates up to 3 times a second. We are fortunate that Indian exchanges give data feed for free for trading clients of their members unlike in developed markets where end clients have to pay for it.
Many exchanges also have premium data feed called Tick by Tick (TBT). As the name suggests, this data stream gives you every single change in the price of bid/ask and all trades on a scrip. This data stream as you would imagine needs exponentially more bandwidth to stream out of the exchanges, which is not technologically feasible. So exchanges have created a space within their premises (called the “colo” for colocation) where they share this data feed with participants who lease servers. Being in the colo also means faster updates on the data feed. Until now, large institutions, brokerage firms who trade high-frequency arbitrage, market making and other such latency-sensitive strategies using algorithms were the ones consuming this data feed.
Our new system sits within the exchange colo and consumes large volumes of real-time TBT data, converts it into 20 depth for retail consumption, compresses the data, streams it to our data center over a dedicated leased line, from where it is streamed to Kite to our users.
How is this useful?
This adds significant value to active traders or those who intend to trade large quantities by giving them insights that is not available on the standard, limited market depth view. Knowing where the most number of bids and asks are placed incrementally across 20 depths as compared to 5 can be a trading edge. Access to 20 depth can also help reduce impact costs on large orders. And of course, level 3 feeds tick faster and deliver more quotes.
Check this example of Yes Bank 70 Calls when the stock moved 30% and trading activity spiked. With 20 depth you can see the demand and supply almost across the entire price range of the calls. You can not only figure where potentially there could be support and resistance on the price due to higher bids/asks, but also get an estimate of the price at which your larger orders could get executed.
Check out this chapter on Varsity where Karthik explains how to use the 20-depth to your benefit.
How do I access it?
For the beta launch, we are opening this up only to our active trading clients; those who have generated over Rs 100 in brokerage in the last 4 weeks. We will keep updating this list every 3 days and expand the beta program. In addition, it is only available for NSE scrips (Stocks, and F&O). As you can imagine, this system is technologically complex and resource and bandwidth-intensive for us, and hence will be a part of our upcoming bundle of premium features. For now, it’s available as a free preview.
While we’ve been building tools and features to help our users with an edge when trading, we have also been working on building a system that actively aids traders do smarter risk management and build discipline. Stay tuned.