Data vendors: what 'tick data' actually means

[Shadow Trader]

Vendors advertise tick data as the gold standard for backtesting. The term hides significant variation.

Some tick data is actual recorded quotes from a specific broker's feed, time-stamped to the millisecond. Some is aggregated from multiple sources, or built from higher-resolution bars by interpolation, which defeats the point. Some contains only bid prices, others both bid and ask, and some include volume while most don't.

Quality issues include gaps, duplicated ticks, inconsistent timestamps, and different handling of weekends and holidays. Differences between vendors for the same pair and period can be substantial, with spread and tick counts varying.

When choosing, questions worth asking: what is the source, is it bid and ask, how are gaps treated, what's the time zone, how far back does it go, and is there a sample to inspect?

The best practice is to compare the vendor's data against live ticks recorded from the target broker over a few days. If the two match closely in price and timing, the data is a reasonable proxy.

Which data source is used for backtesting, and how closely does it match live execution conditions?