First introduced in 1983 as the Nasdaq Quotation Dissemination Service (NQDS), Level 2 is a subscription-based service that provides real-time access to the NASDAQ order book. It is intended to display market depth and momentum to traders and investors.
The service providesprice quotes from market makers registered in every NASDAQ-listed and OTC Bulletin Board securities. The Level 2 window shows the bid prices and sizes on the left side and ask prices and sizes on the right side.
Key Takeaways
Nasdaq's Level 2 subscription service provides market depth and momentum statistics to traders. It is intended to provide a bird's eye view of market action.
The additional information related to pricing action and market momentum gives traders and investors a leg up in implementing trading strategies.
Level 2 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 ofmost investors, providing the inside or best bid and ask prices. However,active traders often prefer Level 2 because itdisplays 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.
Level 2 and Reserve and Hidden Orders
Many ECNs, which are the automated systems that matchbuy and sell orders for securities, offer the ability for traders to post reserve orders and hidden orders.ECNs generally display the best available bid and ask quotes from multiple market participants, and they also automatically match and execute orders.
ECNs offer a reserve order option, which is composed of a price and display size along with the actual size. This order only shows the specific display size on Level 2 as it hides the truesize of the entire order.
Hidden orders, which are an option where investors can hide large orders from the market on the ECN, function in a similar way but are invisible on Level 2. This allows for more discretion in determining prices. The best way for users to determine the status of reserve or hidden orders is to check the time and sales for trades at the indicated prices.
Benefits of Trading Using Level 2 Quotes
The main benefit of using Level 2 quotes is getting access to a wealth of information related to the market. This information can be used in various ways for profit-making. For example, you can ascertain liquidity volumes and order sizes for a stock traded on Nasdaq. You can also identify trends using information about bid and ask orders.
Important information related to market makers and institutional investors is also available in Level 2 quotes. Traders can use this information to their advantage. For example, they can gauge an institutional investor's interest in a large stock from their order sizes and place identical orders. A similar strategy can be used with reserve orders, which are large orders broken into smaller-sized lots. Once they have identified hidden orders from L2 quotes, traders can place similar orders because institutional investor action will help support and resistance levels for that stock's price.
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 to determine pricing pressure and implement trading strategies.
An order is a set of instructions to a broker to buy or sell an asset on a trader's behalf. There are multiple order types, which will affect at what price the investor buys or sells, when they will buy or sell, or whether their order will be filled or not.
book for stocks that trade on the Nasdaq exchange. Orders are placed through many market makers and other market participants. Level II displays a ranked list of the best bid and ask prices from each of these participants. This gives you detailed insight into the price action
price action
In simple terms, price action trading is a technique that allows a trader to read the market and make subjective trading decisions based on recent and actual price movements, rather than relying solely on technical indicators.
What is Level 2 Market Data? Level 2 is a generalized term for market data that includes the scope of bid and ask prices for a given security. Also called depth of book, Level 2 includes the price book and order book, listing all price levels of quotes submitted to an exchange and each individual quote.
The highest current bid prices in order from highest to lowest. Each entry shows which investor placed the order, how many they ordered, and the price they paid. The lowest current ask prices in order from lowest to highest. Each entry shows who placed the order, how many were purchased, and at what price.
Level 2 stock data shows all of the orders that have been placed at prices below the best bid price or above the best ask price. These are limit orders that could be executed if the price of a stock were to fall or rise.
Level 2 data gives you full access to the order book underneath a share's buy and sell prices. So, while level 1 data tells you what price you can buy and sell for, level 2 data also tells you what price everyone else in the market is buying and selling that same asset for.
Specifically, a Level 2 data set tells you: High bid prices, participants and volume. A set of the highest current bid prices for this asset, defined as the highest prices at which investors have placed an order to buy it. These bids are ranked in order from highest to lowest (best to worst).
Level 1 quotes provide basic price data for a security including the best bid and ask price + size on each side.Level 2 quotes provide more information than Level 1 quotes by adding market depth. Level 2 shows market depth typically up to the 5-10 best bid and offer prices.
Level II displays the order book for Nasdaq stocks, including the best bid and ask prices by various market makers and other market participants. Level II shows you who the market participant is that's making a trade, whether they're buying or selling, the size of the order, and the price offered.
Where can I find Level II Market Data? You can find Level II Market Data for securities traded on Nasdaq within your Robinhood account: Go to a security's detail page.In the app, select the arrow next to the current trading price.
Level 1 data only shows the current best bid and ask prices – the trading equivalent of seeing just the tip of an iceberg. Level 2 data shows all of the outstanding orders around the current stock price.
With TotalView, you have access to all of the depth available for immediate execution in NASDAQ, which includes quotes and orders not visible in Level 2. TotalView displays more than 20 times the liquidity of Level 2 and three times the liquidity within five cents of the inside market.
Day trading relies heavily on volatility, intraday price action, and the market in real-time, therefore it would be impossible to trade without Level 2 market data. It is necessary in order to make trading decisions.
The speed of execution is immediate along with the ability to mask order transparency with hidden orders and reserve/iceberg orders through ECN limit books. Most active day traders will need level 2 + time & sales for precision entries and exits.
Most of the best trading platforms out there have Level 2 functionality. Fidelity, E-Trade, Interactive Brokers, and many others have Level 2 stock trading and Level 2 options trading.
What is Level 2 US market data (Nasdaq TotalView)? Level 2 Advance US Market Data is a premium data feed powered by Nasdaq TotalView. It provides the best 50 levels of bids and asks for all NASDAQ, NYSE and regional listed stocks on the NASDAQ Market Centre.
We support the full array of Level 1 consolidated (SIP) data, Level 2 full-depth data from NYSE, NYSE Arca, order imbalance information, short interest data, and index/ETF stats data from various NYSE products.
A level 3 quote looks the same as a level 2 quote, but it's interactive. Participating market makers are the only ones with access to level 3 quotes. This is the system they use to place new quotes, adjust current quotes, or remove old quotes.
The Nasdaq Stock Market has three distinctive tiers: The Nasdaq Global Select Market®, The Nasdaq Global Market® and The Nasdaq Capital Market®. Applicants must satisfy certain financial, liquidity and corporate governance requirements to be approved for listing on any of these market tiers.
Level 1 data only shows the current best bid and ask prices – the trading equivalent of seeing just the tip of an iceberg. Level 2 data shows all of the outstanding orders around the current stock price.
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