What is the Difference Between Pricing Data and Composite Data?

What is Pricing Data?

Pricing data refers to the information that reflects the current or historical price of an asset. This data includes the bid and ask prices, last traded price, volume, and other details that are essential for understanding the real-time or historical value of an asset.

Pricing data is gathered from individual trades on exchanges or Over-the-Counter (OTC) markets and is used by traders, investors, and institutions to make immediate trading decisions, assess asset performance, and conduct market analysis.

Pricing data reflects both indicative and direct trading activity.

What is Composite Data?

Composite data, on the other hand, is an aggregated form of pricing data that provides a consolidated view of an asset’s value across multiple sources or markets. Composite data often includes averages, medians, or weighted calculations derived from multiple price points.

It can be used in constructing indexes, creating valuation benchmarks, and understanding broader market trends. Composite data may blend information from several markets, platforms, or time periods to create a more stable and generalised representation of an asset’s value.

Key Differences

Benefits of price data over composite data

Price data originates from a single source, as opposed to composite (aggregated) data which is a consolidated view across multiple sources. Composite data often includes averages, medians, or weighted calculations derived from multiple price points. Price data offers several specific benefits:

1. Real-Time Accuracy and Market-Specific Insights

Market Conditions: Price data from a single source or dealer reflects the exact conditions and trends of that specific market. This is especially important when focusing on a particular market where slight price differences can have large implications.

Liquidity Insights: For markets where liquidity differs across venues, single-source prices provide a clearer picture of liquidity and trading volume in that specific venue, which can impact order execution strategies.

2. Less Complexity in Analysis

Easier Comparisons: Single-source price data allows users to compare metrics more easily, without needing to account for the methodology or weighting of composite prices.

Cleaner Historical Data: Single-source prices are generally easier to work with for historical data comparisons, especially in cases where composite methodologies may change over time, introducing inconsistencies.

3. Better Reflection of Local or Market-Specific Factors

Regional or Sector-Specific Prices: In markets where prices can vary widely by, single-source data provides a more accurate reflection of local factors than a composite price that can smooth out these variations.

Specialised Information for Niche Markets: Certain markets may not be presented by composite prices, making single-source data more informative and reliable.

4. Reduced Data Processing Needs

Data Origin: Single-source prices have a clear, straightforward origin, which can make audit trails and regulatory compliance simpler by avoiding the need to explain composite methodologies.

5. Avoidance of Methodology-Based Bias

No Weighting or Averaging Bias: Composite prices use different methods (such as volume-weighted averages) to combine data, which can introduce biases or mask the true price on any individual exchange. Single-source prices avoid this, providing unfiltered market data.

Enhanced Volatility Signals: Composite prices can be very volatile (screen shots below) so using a single source can provide more accurate pricing levels.

The two screen shots below show example composite data (purple) and pricing data (orange): as you can see, the composite data is very volatile (noisy) with spikes and large movements in prices, whereas the pricing data has a much smoother curve for the same time period.

Conclusion

In summary, pricing data and composite data serve complementary roles in financial analysis and trading. Pricing data provides the precise, up-to-the-moment information needed for real-time decisions, while composite data offers a broader view of market trends.

Composite prices are useful for a broad, aggregated view of the market, while single-source price data is often more effective and accurate in requiring precise, real-time, especially for traders and analysts focusing on short-term movements, specific regions, or niche markets.