What is MARKET Depth ?? Market Depth is another name for Order book information. Order Book displays 5-10 levels of Bid and Offer Prices along with the volume sizes. this is very useful information for high frequency trading. Order Book tells us about what state the market is in. The amount of data is huge. Here I give some tips and useful information in how to combine the Order book Data with the Time & sales Tick Data.
CME usually provides 5 levels of information for futures contracts.
So, To construct a sequential price flow, we need to combine the Depth and Tick Data. By doing this, we can reconstruct the price action that has taken place in the market.
It is best to work with the Best Bid Best Offer and Time and sales data to reduce the memory requirement.
Always, Market Depth Updates first and then trade gets updated. If one is collecting the data, one needs to note down the Time stamps (upto msec level) and the corresponding Data.
Depth Update 08:30:01.324 1925.50 1925.75
Trade Update 08:30:01.325 1925.75 500 (volume)
As you can see, one needs to see the time stamp for the last trade and see what was the best bid and best offer right before it and then combine the both into one row as follows:
08:30:01.325 1925.50 1925.75 1925.75 500
This gives a better picture of what really happened.