What it means
When you look up a share price on a brokerage app or a finance website, you are usually looking at Level 1 data. It tells you the headline figures: the highest bid, the lowest ask, the size available at those prices, the last price at which the share traded and how many shares have changed hands during the day.
It does not show anything deeper in the queue of orders. The bid is the highest price a buyer is currently willing to pay, and the ask is the lowest price a seller is willing to accept.
The difference between them is the bid-ask spread, which is a real cost every time you trade. A tight spread usually means a liquid market, where you can buy and sell easily, and a wide spread signals a thinner market.
Level 1 data is free or cheap, and delayed versions are widely available. Real-time feeds usually cost a small fee in many markets.
For a long-term investor, a business owner checking the value of a holding, or a finance team marking a position at month end, Level 1 provides all the information needed. The limitation is that it shows only the top of the book.
You cannot see how many orders are waiting just behind the best price, so you cannot tell whether a large order would move the price. Active traders who need that information use Level 2 data, which shows the depth of the order book.
It is also worth separating this term from the fair value hierarchy used in accounting, where "Level 1" is the label for inputs based on quoted prices in active markets. The two ideas are connected, because Level 1 market prices are exactly the sort of quote that supports a Level 1 fair value, but they are used in different contexts.
In practice
Real-world examples.
Example
A retail investor opens her brokerage app and sees a bid of $120.10, an ask of $120.14 and a last trade of $120.12. She places a limit order to buy at $120.12 and waits for the market to come to her.
Example
A finance manager at a manufacturing company needs to value a small holding of listed shares in the monthly accounts. He takes the closing price from a standard Level 1 quote, which is enough to support the figure in the balance sheet.
Example
A small business owner receiving shares as part of a deal wants to know how easily she could sell them. She compares the bid-ask spread on two shares, and chooses to hold the one with the tighter spread because it should be easier to sell.
Formula
Calculation
Bid-ask spread = Ask price - Bid price
Spread percentage = Spread / Midpoint price, where Midpoint = (Bid + Ask) / 2
Worked example: a share shows a bid of $49.98 and an ask of $50.02.
Spread = $50.02 - $49.98 = $0.04.
Midpoint = ($49.98 + $50.02) / 2 = $100.00 / 2 = $50.00.
Spread percentage = $0.04 / $50.00 = 0.0008, or 0.08%. If you buy 1,000 shares at the ask and immediately sell at the bid, you lose 1,000 x $0.04 = $40 before any commission, which is the cost of crossing the spread.Case study
Seen in the real world.
Marsden Wealth is a fictional advisory firm that serves long-term clients. A junior analyst asked whether the firm should pay for expensive real-time depth-of-book data on every share its clients hold.
The finance director reviewed the firm's trading pattern. Clients made about 30 trades a month, mostly in large, liquid companies with spreads of less than 0.05%, so Level 1 data gave all the information needed to place orders sensibly.
The firm decided to stay with Level 1 feeds, saving several thousand dollars a year in data fees, and to buy deeper data only for the rare occasions when it traded very large blocks of less liquid shares. This is an illustrative story, but the reasoning mirrors real cost decisions.
Watch out
Common mistakes.
- Assuming the last trade price is the price you will get. The last trade may be several seconds old, and your order will fill at the current bid or ask, which can be different.
- Ignoring the spread when comparing investments. A wide spread can quietly cost more than the commission on a small trade.
- Confusing Level 1 market data with Level 1 assets in accounting. The first is a type of quote, and the second is an asset valued using quoted prices, so check which meaning is intended.
Questions
People also ask.
What does Level 1 data include?
The best bid and ask, the sizes available at those prices, the last trade price and volume. Some feeds also add the daily high, low and opening price.
Is Level 1 data free?
Delayed versions are often free, while real-time versions may carry a fee from the exchange or broker. The rules differ by market and provider.
When do I need Level 2 instead?
When you want to see how many orders are queued behind the best bid and ask, usually because you are trading actively or in large size. It helps you judge how much a big order might move the price.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related