Introduction to Level II Quotes

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An appropriate way to approach our scrutiny would be in the academic spirit. Let us turn to the investopedia. Level II shows the best bid and ask prices from each of these participants.

It also shows whether the last trade tick was up or down, then comes the Last the last traded priceand the Net Chg change for the day. In this case the numerical representation shows where online trading level 2 option contract is currently trading at the penny wide Bid and Ask spread, the Bid being 0.

This is listed under the price and highlighted in yellow. Under Depth we are told that at that very moment in time there were four market participants bidding while six were offering at that price level. This summary information, online trading level 2 to us on the Summary Pane, is good but it does not give us any specifics online trading level 2 the size and the names of online trading level 2 participants.

Now, let us go slowly through these specifics. The above table shows that the Bid and Online trading level 2 spread for BOX is a nickel wide while the real market is only a penny wide.

A trader not using a Direct Access Trading DAT platform might be getting hit by this wide slippage every single time an order is routed. Each trader should know whether his or her platform is or is not a DAT. In conclusion, routing for all option trades should be done through a DAT platform so that slippage can be minimized. Disclaimer This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever.

Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein.

Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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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 of 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, sorting 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 provided 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.

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