Top of Book vs Market Depth: Which Data Do You Need for Orderflow Trading

Choosing between Level 1, Level 2, and Level 3 data is one of those questions that gets argued about constantly and rarely explained well. They all show the same market, just at different levels of detail. The right choice depends on how you plan to trade.

Most people come to this question from candlestick charts, which isn't considered a level of market data but rather a summary of trades bucketed into time windows. The three levels explained below are what sits underneath that summary: the raw trades themselves and the resting orders behind them.

Top of Book (Level 1)

Big Trades indicator

Footprint chart

Level 1 shows the best bid and ask, and it also shows the trade data: how many contracts printed at each price, and which side was the aggressor. This is what tools like Big Trades and footprint charts are built on.

While seeing the order data is hugely beneficial as we can see where buyers and sellers hit resistance, and gain or lose momentum — what Level 1 leaves out is market depth: resting orders beyond the best bid and ask.

Level 1

Level 2

Market Depth (Level 2)

Level 2 shows resting size at multiple price levels beyond the inside market - typically the top 10 levels on each side, though some feeds expose the full book.

The two behaviors to watch: pulling (cancels) and stacking (adds). If total bid size in the 10 ticks below market collapses from 400 to 150 contracts in seconds, uncertainty just spiked - usually news, a scheduled print (CPI, FOMC), or a higher-timeframe level breaking.

Stacking is the opposite signal. When aggressive sellers keep hitting a bid and new size reappears to refill it, someone is defending the level. Their total size stays hidden, but the pattern of refills reveals intent.

This is where Level 2 becomes practical. If you are in a one-hour setup and the book suddenly pulls, the conditions you entered on no longer exist - new information has hit the market.

MBO (Level 3)

Market By Order (MBO) data sends every individual order in a sequence as opposed to a snapshot. So its possible for full book depth but it must be built from the very beginning of the session.

Which level do you need?

Level 1 is typically adequate for swing and position trading. Level 2 is more useful for scalping and day trading. And level 3 is primarily beneficial for algo trading.