Day Trading & Forex Forum

andrewmooton

Hi there I was wondering if anyone would be so kind as to explain to me what exactly level 2 is and whats so good about it.

Thanks
Andrew

JTrader

UK Level 2 data
Recent technology has allowed access to market information that was once available only to the Market Making community and to the Institutional world. The retail customer now has a chance of operating on a more level playing field with the 'professionals'.

Each Level II screen gives you much more information than the traditional Level 1 screens (showing Bid/Offer/Volume etc.). The Level 1 information that most systems provide only show the bare essentials but fails to show how the prices are derived. For an active investor/trader it can be useful to have as much depth of information as possible, which is where Level 2 differs.

Level 2 SEAQ screens are primarily a display screen showing the Market Marker(s) ID in the particular stock and their current bid and offer. Bid, bid size, offer, and offer size data. Level 2 SETS screens show the full order book ( i.e. all outstanding orders to buy and sell shares in the market.)

andrewmooton

thank you for the reply jtrader.

could you possibly give me an example of how this extra information can be of use?

JTrader

Hi Andrew

I can only really speak with regard to UK SETS level 2, which I have been a user of when trading BARC, ANL, LLOY etc..

Buy orders appear in the left hand column and sell orders in the right hand column. Orders are electronically executed once buy and sell orders match in price.

This information can be of help in giving peace of mind -often supporting what a real-time chart may be saying. For example, at major support or resistance levels on a chart you are likely to see lots of buy or sell orders grouped together on the level 2 order book that confirm this. Level 2 can therefore be useful in showing you that the market is not about to/unlikely to collapse if you were to make an entry.

If there are twice as many buy orders/volume as sell orders it is logical to assume that the price will rise. If there are double the amount of sell orders/volume it is logical to assume that the price is heading down. What happens on the chart will often confirm this.........But not always..........

I found that Level 2 data can be confusing and often put me off taking a trade, and then the chart unfolded to tell me that I should have taken it. I have seen situations when the sell orders volume is quadruple the buy orders volume. This indicates that the market is heading down and the exact opposite occurs and the price heads up.

For these reasons I found myself moving away from the use of level 2 - and placing much more emphasis on the chart instead - which I now certainly consider more important than level 2.

I am now in the process of moving to forex trading - where a level 2 screen is not available, and all my trading decisions are based on the chart.

HTH

jtrader.

Racer

Several years ago when Level 2 was not freely available and few knew of its existence apart from MMs then it was of great use, but now with the 'regular punter' having easy acces the MMs have made it much more difficult to read. The book can be made to appear like it is going down.. very easy to do with thinly traded stock, but then it will move the other direction!
Also there are now icebergs and robots...
the tip of large orders, only a small part appears on L2, then when that small trade is filled it is replaced by another small trade

andrewmooton

so what you are all saying is that its a useless load of old ********?

Trader333

I trade US Nasdaq stocks and I find Level II invaluable as a tool for reducing risk at entry. Also there are very obvious clues to what is often going on with Icebergs etc. If you were to ask Naz he would also tell you that Level II is essential for success in the way that he trades.


Paul

Racer

andrewmooton.

I wouldn't say it is useless, I wouldn't trade without it and have had L2 for years!