What is Financial Market Data & How to Use It

What is Financial Market Data?

Financial market data refers to trade-related data, encompassing information on financial instruments and assets across thousands of global markets. Such instruments can include stocks, shares, or derivatives.
Trading venues (exchanges or other multilateral trading facilities) supply this data, which is then used predominantly by traders and investors in a variety of ways. For example, the information garnered can influence traders’ decisions on whether to enter or exit trades, or impact investors’ evaluations about the market risk surrounding a certain asset. Market data enables the end user to identify current or historical trends, allowing them to forecast for the future and make judgements accordingly.

Market data can be categorised in terms of pre- and post-trade data. Pre-trade data involves the bid/ask data needed to be able to price a financial instrument, while post-trade data includes the last trade price and other information related to the transaction.

How to Use Financial Market Data?

On the whole, market data reveals the attractiveness of a particular market or industry, essentially providing an insight into the financial situation of a given market. This is useful for a wealth of different groups of people who use market data in their daily activities. Amongst these are traders, who gather and assess market data in order to evaluate the market risk involved in the process of trading a particular asset or instrument.

For individual or institutional investors, market data is a gateway to understanding previous trends, making informed decisions based on facts, and forecasting future performance. The goal of this is to drive profitability and increase returns.

Meanwhile, wealth and asset managers use this data to calculate the worth of assets, which in turn helps them to guide their clients and offer them tailored solutions. Additionally, companies such as financial services firms use market data to facilitate their own research processes.

What are typical Financial Market Data attributes?

The most common way for traders and investors to access market data is through a financial data aggregator that gathers, regularises, and distributes the information.

The market data for a particular instrument would include the identifier of the instrument and where it was traded, as well as details on the latest offer. For example, data from the stock market would consist of:

  • The most recent bid price (indicating the price at while a buyer is willing to pay for a security)
  • The most recent ask price (indicating the lowest price that a seller is willing to sell a security for)
  • The time of the latest quote and trade
  • The price and volume of the last sale
  • The ticker symbol of a product (an abbreviation for a listed security on an exchange. For example, Apple is abbreviated to AAPL).

Market data vendors usually release data on different delay frequencies: real-time, delayed, or end-of-day. Market data that is available in real-time gets delivered to the user the moment it becomes available, allowing them to make quick, informed trading decisions. Delayed market data lags approximately 10-20 minutes behind real-time quotes. Historical market data may also be offered, which is used to project pricing trends, calculate market risk on portfolios of investments, and derive strategies for future trades.

How is Financial Market Data typically collected?

Market data vendors distribute data that is collected from sources across the globe and translated into an accessible format, ready for consumption by the end user.

The financial information is extracted from publicly available sources such as exchange feeds or regulatory filings (such as an SEC filing - a financial statement or other type of formal document that is submitted to the U.S. Securities and Exchange Commission). Some vendors may possess information from corporations, including private investment firms, that allows them to provide information that is not publicly available.
Once these data feeds are brought together, the data vendors process the information internally before delivering it to the end user. The data would be reformatted from the exchange-specific format into a more consistent format, then normalised and sorted on a real-time basis to eradicate outstanding anomalies. Moreover, vendors may enhance their offerings with additional information such as listing information, share data, or historical data.

The transportation of the data to the user can be done via broadcast, satellite, private line, VPN or internet, depending on the user’s requirements.

How to assess the quality of Financial Market Data?

There are different factors to consider when deciding whether the quality of the data is right for your purpose. For example, whether the market data API provides the right data frequency you need in a format that is flexible and convenient. The data can be delivered in different formats depending on how the data vendor models the data, so it is worth checking whether it is something that can be integrated with your operations.

Larger market data vendors may operate across the globe and would therefore be able to offer users the opportunity to access local information and expertise. Additional services offered by the data vendor can especially prove advantageous since having more information at the user’s disposal can affect the quality of decisions made.

How is Financial Market Data typically priced?

Market data can be purchased with a recurring subscription or through a one-time purchase of bulk information. Market data vendors may offer packages with different data latencies (data latency refers to the difference in time from when data is created at its source to when it is made available to the end user). Lower latencies would usually be more costly and complex than higher latencies.

What are the common challenges when buying Financial Market Data?

The prices of financial instruments can fluctuate rapidly. In cases where the real-time delivery of market data is critical, such as for high-frequency trading where every fraction of a second matters, the prompt delivery of market data is vital. The challenge that comes with this is the risk of significant latency or lags in the delivery of the data. Since global financial data streams in from trading venues around the world, it is beneficial to confirm that the data provider is capable of providing high speed access to market data that is simultaneously reliable and accurate. This will ensure that the user can receive the data in a timely manner to be able to analyse it and make informed decisions.

What to ask Financial Market Data providers?

When contacting Financial Data vendors, it is advisable to keep in mind the following questions:

  • Can I integrate the content with my workflow applications?
  • Do they offer global coverage of the financial instrument or asset in question?
  • Do they offer any analytical tools or additional services?
  • How will the data be delivered?

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