Notional Pooling – Meaning, Advantages and Disadvantages
Commercial banks provide various types of services to their customers. One such area of service is that of liquidity management. Commercial banks offer several liquidity management arrangements to their clients. Notional pooling is one such arrangement that is very popular amongst corporations that have many subsidiaries. In this article, we will have a closer look […]
Multiproduct Contribution Margin
Finding the Contribution Margin: It begins with the same old way. Companies have to compute the contribution margin for each of their products. This is a possibility if a company has a couple of hundred products. If there are thousands of products, we may have to use the sales based approach mentioned in the end […]
Risks in Money Market Investing
Money market instruments are considered to be very low-risk investments. This is because the money market as an asset class is considered to have a considerably low-risk profile as compared to other asset classes such as equity and debt. The main reason for the low-risk profile is because money market instruments consist of a large […]
Early Termination of a Public Private Partnership
Public private partnership is a widely used model when it comes to infrastructure financing. However, it needs to be understood that not all public private partnerships end successfully. In some cases, the partnership ends in a default. This means that either one of the parties’ viz. the private party or the public party are unable […]
Traditional Bonds vs. Islamic Bonds Called “Sukuk”
The word Sukuk is an Arabic word which means certificate. These are certificates which are offered by corporations and governments which follow Islamic principles. For instance, Saudi Arabia has issued a new tranche of Sukuk in the year 2017. This was done to provide medium-term financing to the government to meet its debt obligations. The […]
Financial markets move on the basis of data. If one party consistently receives information faster than the others, then the said party is statistically likely to consistently make more money as compared to other parties because of this data advantage.
There are several pieces of data that are important while trading in the stock market. There are some pieces of data like the company’s balance sheet and profit and loss account. This data makes it possible to conduct a fundamental analysis of any given company. On the other hand, there is another type of data called market data.
In simple words, market data means information relating to prices and volumes of a particular stock or bond which are being traded on the market. This data provides more clarity about the behavior of the stock on a financial market. Hence, it is called market data.
In this article, we will understand what market data is and why it is important in the financial markets.
As mentioned above, market data is data relating to the behavior of a particular stock or bond in the financial market. This data is collated and analyzed in order to fully understand the risks which an investor may have to take if they invest in a particular security.
Market data generally consists of the following types of information:
When large volumes of securities are being transacted at a given price, it is highly unlikely that the price has been manipulated. This is because the manipulation of entire markets is generally beyond the capability of a few traders.
For instance, if the promoter of a company is selling the shares of that very company, it could mean a negative sign for the company.
Bulk deals lead to sudden price changes. Market data publishes this information in advance allowing retail investors to take corrective measures.
It needs to be understood that market data is extremely time-sensitive. This means that this data is analyzed, and decisions are made within minutes of receiving this data. Therefore, if the data is received after a time lag, it is useless to investors. This is the reason that investors try to cultivate a source from where they can obtain this data faster than their peers.
Large investment banks have been known to relocate in physical proximity of the exchanges in order to obtain data a few milliseconds faster than their peers.
Also, some investment banks have invested their own money to lay a dedicated fiber optic cable, which would enable them to receive the data faster. These banks have special algorithms with built-in capabilities that allow them to undertake automated high-frequency trading in order to take advantage of the information advantage they have over their peers.
The market data related to the behavior of any stock is obtained through a single source i.e., the stock exchange. Hence, the fastest way to get the data would be to get connected to the exchange. However, most stocks today trade on multiple exchanges. As a result, there is a need for an intermediary who can collate data from several sources and present it to the investors in a pre-determined format.
The bottom line is that market data is an important component of the financial system. There are a lot of services and activities which would become redundant in the absence of timely availability of market data.
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