Level 2
Candlefocus EditorLevel 2 is specifically designed to improve traders’ ability to manage risk and take advantage of rapid intra-day price movements. Most implementations of Level 2 offer a much greater depth of liquidity than what is available with the public Nasdaq Level 1 market data service. In other words, the Level 2 data includes quotes provided by all market makers, instead of just the best quotes of those market makers trading on the Nasdaq Stock Exchange. This deeper liquidity can provide users with a better understanding of the underlying supply and demand dynamics in the market, and therefore allows traders to make sound decisions faster.
Level 2 also offers traders additional visibility into market trends by displaying the size of orders, potential trade direction as well as rate of pricing changes. In addition, users can observe the detailed order information for different products to look for possible price discrepancies. Level 2 data can be used by both individual traders and institutional investors to give them an advantage in the marketplace.
In the world of electronic trading, Level 2 is the go-to data source for active traders, allowing them to push the boundaries of their trading strategies. For example, a trader might buy shares of a certain stock if Level 2 shows that there are an increasing number of orders near or slightly above the current price, as this could indicate that there is buying momentum behind the stock. Alternatively, a trader might sell a stock if Level 2 reveals that there is a high threshold of orders near or slightly below the current price, as this could indicate that there is selling pressure behind the stock.
Level 2 does come at a cost. Traders and investors must subscribe to the service and pay a fee for access to the data, but for active traders, the benefits can far outweigh the cost. With access to the most detailed market data available, traders are able to react to rapid price movements, take advantage of market trends and gain a better understanding of the underlying market activity that is available.