Trade Smarter, Not Harder
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However, more advanced traders that want to know which direction a stock may be headed in the short-term will need information beyond the simple bid and ask quotes. Level 2 quotes provide traders with that extra bit of info about where buying and selling pressure is coming from and the magnitude of that pressure.
Most trading platforms provide traders with basic stock quotes. Basic quotes are called Level 1 quotes, and they tell traders the real-time bid and ask price, as well as the last traded price and trading volume. Level 2 quotes take things a step further, revealing a sorted list of the different open buy and sell orders from different market makers. Market makers are the broker-dealers that hold large quantities of stocks and are charged with maintaining market liquidity by filling third-party buy and sell orders using their own inventory.
In other words, L2 quotes are not just a ledger of all the completed trades. An individual L2 order will typically have three parts. The first number will be the number of shares the market maker is seeking to buy or sell.
Typically, this number is divided by to simplify the order book, so an order size of 29 would represent 2, shares.
Popular stocks have dozens best real time option trading information market makers actively trading shares on any given day. Typically, an L2 quote screen will place active buy orders in one column and sell orders in another, best real time option trading information both columns by price. The single most important piece of information day traders get from L2 quotes is the order sizes putting pressure on both the bid and ask prices.
An L1 quote tells traders only what the best buy and sell offers are at any given time. However, L2 quotes tell traders how large those offers are and how many more orders are in line behind them after the first order is filled.
In addition, by watching L2 quotes closely for several days, traders can identify which market makers s are dominating the trading action for a given stock. Finally, by looking at order sizes, traders can deduce what type of buyers and sellers are driving the action. This article is best real time option trading information for educational purposes only and is not considered to be a recommendation or endorsement of any trading strategy.
The author is not affiliated with Lightspeed Trading and the content and perspective is solely attributed to the author. Navigating Taxes as an Active Trader.
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