“Level 2 (sometimes written “Level II”) provides users with depth of price information, including all the available prices that market makers and electronic communication networks (ECN) post.
Level 1 offers enough information to satisfy the needs of most investors, providing the inside, or best, bid and ask prices.
However, active traders often prefer Level 2 because it displays the supply and demand of the price levels beyond or outside of the national best bid offer (NBBO) price.
This gives the user a visual display of the price range and associated liquidity at each price level. With this information, a trader can determine entry and or exit points that assure the liquidity needed to complete the trade.
Price movement on Level 2 is not necessarily an actual reflection of the recorded trades; Level 2 is just a display of the available price and liquidity.
This is an important distinction because high-frequency trading programs frequently adjust Level 2 bid and ask prices violently to shake the trees and panic onlookers despite the lack of actual executed trades. This practice is common in momentum stocks.” – Investopedia
Example Level 2 Quote
There are six important columns in a Level 2 quote for a given stock.
The first one is MMID. This column identifies the four-letter identification for market makers.
The second column is Bid or the price that the market maker is willing to pay for that stock.
The third column is Size. This column is the number of orders placed by the market maker at that size.
The remaining three columns on the right-hand side are similar. The sole exception is Ask, which is the price that the market maker is willing to sell that stock price. Traders can use the difference between the bid and ask prices, the spread, to determine pricing pressure and implement trading strategies.
Time and Sales vs. Level 2
Level 2 is essentially an order book for stocks, showing us the best bids (buyers) and asks (sellers) in realtime for any given stock, along with the number of shares and the route used to place the order.
Every time anyone buys or sells in the live market, that transaction is visible on the time & sales
Questions or suggestions?
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