tick sources

[fundjunkie]

Hi All,
I've been taking a look at some tick data providers on the internet. One of the things I noticed is that they provide tick+level1 and tick+level1+size.

Can someone explain to me the difference between these data types and their relative value in any backtesting study?


Thx
D

 

[sandpiper]

fundjunkie,

Can't be absolutely certain since you don't mention the specific sources but:

- tick : should give you all trades (ticks) and the size of those trades.
- tick+level1 : should give you all trades and all best bid/offers.
- tick+level1+size: should give you all trades, all best bid/offers complete with the size offered/bid.

Their relative value in terms of backtesting depends entirely on the type of instrument you are looking at and the type of system you are testing.

For most forms of backtesting the best bid/offer + size information would be pointless. However, it may be useful to know the potential liquidity at the time/point of entry, i.e. best bid/offer + size.

It's also worth considering that some backtesting software is incapable of processing the best bid/offer + size information anyway.

 

[jmreeve]

Sandpiper is correct.

Just to add to that, data with the bid, offer and quote size can provide very detailed back tests allowing estimation of partial fills on limit orders and split price fills on market orders. There are also some trading strategies that use the bid and offer size that need this data for back testing.

However, the amount of data is truly huge with the penalty that back testing is much slower. For many purposes compressed interval bar data is adequate and much easier to handle.