Level 2

What Is Level 2

First presented in 1983 as the Nasdaq Quotation Dissemination Service (NQDS), Level 2 is a subscription-based service that gives real-time access to the NASDAQ order book. It is expected to display market depth and momentum to traders and investors.

The service gives price quotes from market makers registered in each 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.

Rudiments of Level 2

Level 2 gives users depth of price data, including every one of the accessible prices that market makers and electronic communication organizations (ECN) post.

Level 1 offers sufficient data to fulfill the necessities of most investors, giving the inside or best bid and ask prices. Notwithstanding, active traders frequently lean toward Level 2 since it displays the supply and demand of the price levels past or outside of the national best bid offer (NBBO) price. This provides the client with a visual display of the price range and associated liquidity at every price level. With this data, a trader can decide entry as well as exit points that guarantee the liquidity expected to complete the trade.

Price movement on Level 2 isn't really a genuine impression of the recorded trades; Level 2 is just a display of the accessible price and liquidity. This is an important qualification in light of the fact that high-frequency trading programs every now and again adjust Level 2 bid and ask prices fiercely to shake the trees and panic spectators notwithstanding the lack of real executed trades. This practice is common in momentum stocks.

Level 2 and Reserve and Hidden Orders

Numerous ECNs, which are the automated systems that match trade orders for securities, offer the ability for traders to post reserve orders and hidden orders. ECNs generally display the best accessible bid and ask quotes from various market participants, and they additionally consequently match and execute orders.

ECNs offer a reserve order option, which is made out of a price and display size alongside the genuine size. This order just shows the specific display size on Level 2 as it conceals the genuine size of the whole order.

Hidden orders, which are an option where investors can conceal large orders from the market on the ECN, function likewise yet are invisible on Level 2. This considers more circumspection in deciding prices. The best way for users to decide the situation with 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 fundamental benefit of utilizing Level 2 quotes is gaining admittance to a wealth of data connected with the market. This data can be utilized in different ways for benefit making. For instance, you can determine liquidity volumes and order sizes for a stock traded on Nasdaq. You can likewise distinguish trends utilizing data about bid and ask orders.

• Important data connected with market makers and institutional investors is additionally accessible in Level 2 quotes. Traders can utilize this data to their advantage. For instance, they can measure an institutional investor's interest in a large stock from their order sizes and place indistinguishable orders. A comparative strategy can be utilized with reserve orders, which are large orders broken into more modest measured parcels. Whenever they have recognized hidden orders from L2 quotes, traders can place comparative orders in light of the fact that institutional investor action will help support and resistance levels at that stock's cost.

Model Level 2 Quote

There are six important columns in a Level 2 quote for a given stock. The first is MMID. This column distinguishes the four-letter identification for market makers. The subsequent column is Bid or the price that the market maker will 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 leftover three columns on the right hand side are comparable. The sole exception is Ask, which is the price that the market maker will sell that stock price. Traders can utilize the difference between the bid and ask prices to decide pricing pressure and execute trading strategies.

Highlights

• The extra data connected with pricing action and market momentum gives traders and investors a leg up in carrying out trading strategies.
• Nasdaq's Level 2 subscription service gives market depth and momentum statistics to traders. It is planned to give an elevated perspective of market action.