Introduction to Level 2

This is a discussion on Introduction to Level 2 within the Educational Resources forums, part of the Commercial category; We've just published a new T2W article called " Introduction to Level 2 " by Andrew Collins . Quick Summary ...

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Old Feb 17, 2005, 5:46pm   #1
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Introduction to Level 2

We've just published a new T2W article called "Introduction to Level 2" by Andrew Collins.

Quick Summary: Most traders have heard of Direct Market Access, or Level 2, but many are unclear on what it actually is.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.
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Old Feb 17, 2005, 7:38pm   #2
 
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A good start, I (and I reckon a good few more) would appreciate some further work on 'this is how to read the screen' so those with a L2 feed have a better idea of determining the short term future?
( I appreciate this is a 2000 page volume! I for one, despite having L2, am as yet unconvinced it is of any use to me... shock horror confession time... I don't trade brief instants in time, I'd like to look at L2 and see the likely course of the next 2-3 bars, and would appreciate anything you'd care to add in that direction.

To end this - thanks, I knew most of if not all of this anyway, but I think this basic level info is something often overlooked and a decode of what the screen shows from somebody who uses it is of real merit. A trader without L2 feed is going to be wondering if that is the magic bullet that makes them profitable - info on it will lead to more aware traders... I don't think the overall win% of T2W members will go up, but those who are going to hack it will get there a little quicker, so thanks for posting this.

Dave
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Old Feb 17, 2005, 9:50pm   #3
 
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Nice intro to the SETS order book and level II, but the prices are a pound out in the text compared to the screenshot.
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Old Feb 18, 2005, 6:31am   #4
 
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OK - so here is a dumb question - what happens if there is no willing pair of buyers and sellers at the going price? Say the share normally has a spread of 5 cents, but at the current moment the bid and offer are 50 cents apart. Is there such a thing as a null tick? A tick where no transaction took place? I can see where this could happen on a thinly traded stock.

How about futures, where the spread is regulated by the exchanges? Are those markets so liquid that someone is always willing to pay the going price? If there is a larger gap between bid and ask orders on the depth of market window, how is that resolved?

Thanks in advance,
JO
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Old Feb 18, 2005, 8:09am   #5
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For a trade to happen you have to have agreement to exchange at a specific price and if not then the trade cannot happen. If people are not willing to buy at a particular price then only two things can happen.

1) No trade takes place at that price

2) The price drops until someone is willing to buy at a low level price.

Of course this is simplified and in a fast moving market things happen so quickly that making an assessment of this process is too quick to see. On thinly traded stocks it is easier to see this process in action.


Paul
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Old Feb 18, 2005, 8:37am   #6
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The only time I've see a spread that wide on LII is after the end of normal trading hours on a stock that has made a massive (normally down) move on the day. Is it tradeable? Depends on whether you believe it will gap down on the open tomorrow - or not.
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Old Feb 18, 2005, 9:49am   #7
 
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Well written easy to understand introduction to Level 2 - well done
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Old Feb 19, 2005, 5:01pm   #8
 
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Some brokers allow you to amend partial fills and keep it part of the same order
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Old Feb 20, 2005, 1:32am   #9
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in the example which is a screen print it shows the yellow strip at
1 500 2888.00 2890.00 1857 3
yet you state the yellow strip shows 500 shares at a buy price of of 2988 and 3 willing sellers with a total of 1857 shares they want to sell at 2990
Is this a missprint ?
it's not a match of price 2880. 2990.00 ?
if possible please reply .
regards twigglet
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Old Feb 20, 2005, 1:39am   #10
 
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Try shifting the price to 2888 - 2890.. as noted above the text and screenshot are slightly out of whack, doubtless a small typo
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Old Feb 22, 2005, 12:08pm   #11
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good article very well explained
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Old Feb 28, 2005, 1:16pm   #12
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Well explained article. Could you give an idea what the commission is when trading direct.
Denis.
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Old Mar 2, 2005, 9:44pm   #13
 
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Aggregated trades

Quote:
Originally Posted by Racer
Some brokers allow you to amend partial fills and keep it part of the same order
I'd like to use such a broker, suggestions? For the US market though.
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Old Mar 7, 2005, 2:54pm   #14
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Does using direct access mean you need a higher level of skill (i.e. more time and effort needed) to place orders in order to beat the yellow strip OR if the skill level is not there is it best just to use a big broker who can get the best prices from the Retail Service Providers (which generally beat the yellow strip by a bit 0.2%ish)?
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Old Mar 21, 2005, 1:40pm   #15
 
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Does anyone know whether Level 2 shows the full depth of the order book and the difference with Level 3?

Alexander
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